Tuesday, 7 June 2016

There is nothing more enervating than not succeeding --

being blocked, not moving ahead.It is a vicious circle .

Failure breeds fatigue , and the fatigue makes it harder to get to work, which, compounds the failure...

The worst mistake we can make is to regardmental fatigueas if it werephysical fatigue . We can recuperate from the latter by giving our bodies a chance to rest.

Sometimes the snare is not in the problem itself, but in the social situation -- or so it appears. But, as Shakespeare wrote, "The fault, dear Brutus, is not in our stars but in ourselves."

Our first step should be to use inexplicable fatigue that has no physical base as a radar -- an early-warning system -- and trace the fatigue to its source; to find the defeat we are papering over and not admitting.

Then we must diagnose the cause of this failure.

But mental fatigue that results from failure cannot be removed by giving in to it and taking a rest.That just makes matters worse . Whatever the specific stumbling block is, it must be cleared up, and fast, before the fatigue of failure swamps us...

Made in the USA

:

More Complex Than You Think

In today's political discourse, it is commonplace for the left to berate major corporations for moving jobs overseas in order to pad profits through the use of cheap labor. It is an argument that easily fits into sound bites and is used to explain away rising unemployment and the death of manufacturing in America. The right, on the other hand, blames organized labor and a draconian tax code for preventing America from competing on an even playing field. The truth, however, is much more complex. A recent eye-opening article in the New York Times examines Apple, one of our nation's great corporate icons, and discusses why the company had no choice but to produce their best-selling gadgets overseas.

What I found most interesting about the article was that, according to Apple executives and other experts briefed on the matter, neither one of those political arguments carries much weight. The reality is that Apple, adhering to a sound business model, strives to make the best products possible at a quality level that is second to none. Unfortunately, the workforce and infrastructure in the United States is not up to the task.

I was surprised that there was no mention of a greedy corporate culture choosing to rely on slave labor, nor was there mention of organized labor making it impossible to have a flexible work force. The reality is that Apple simply could not find enough skilled labor in the United States to make the complex technical products that are the reality in today's gadget-hungry marketplace. When Steve Jobs told President Obama that "those jobs aren't coming back," it was not because Apple couldn't make a profit manufacturing in America, it was because America simply did not have the labor and capital resources to build an iPhone.

According the article, more than 8,700 industrial engineers are required to oversee the iPhone supply chain. In the United States, it would have taken nine months to find that many engineers. In China, it took 15 days. That is a damning indictment of the American education system if a company cannot find enough skilled workers to build an iPhone. Skilled workers are supposed to be America's strength, while the common explanation is that our lack of unskilled workers and uncompetitive wages are the real problem.

While a lack of American skilled labor is a hindrance, it is our nation's lack of infrastructure that makes managing a fast-paced, flexible, and highly technical supply chain extremely difficult. According to Apple executives quoted in the article, "Asian supply chains have surpassed what's in the U.S." The result is that, "... we can't compete at this point." That has left America to rely on its service sector, which can provide steady jobs; but it relies too heavily on domestic consumption, does not provide upward mobility, and doesn't require technical skills to add innovation to the economy.

Putting the political rhetoric aside, our nation has some soul searching to do if it really intends to compete in a globalized economy. If America's leaders want to see us regain our manufacturing dominance, the answer is not as easy as "right-to-work" laws, a changing tax code, or currency manipulation. Germany, for example, has proven that it can make quality exports and still pay decent wages and benefits to its workers.

The real answer lies in teaching Americans the skills they need to compete globally, such as vocational schools focusing on supply-chain manufacturing and a focus on the type of industrial engineering required for large-scale production. Finally, we need a public policy environment where emphasis is placed on infrastructure modernization, allowing us to produce and move goods much more quickly and flexibly. This means an upgraded rail infrastructure, smart power grids, incentives to build modern factories, and an investment in energy production that will reduce the cost of doing business.

Claudio Dematté

Forget Manufacturing

-- "Those" Jobs Aren't Coming Back --

With more than 14 million people seeking work in the U. S. there is clearly a critical need for more jobs. Numerous politicians have stated that the number one concern of the U.S. government should be to focus on this initiative, particularly within the manufacturing sector.

But is manufacturing really the right place

to zero in?

I would argue that there are a number of reasons that prove otherwise.

There is no doubt that the U.S. has lost millions of manufacturing jobs over the last several decades and the recession only continues to accelerate this increase. However, often overlooked in the discussion is the fact that many U.S. manufacturing corporations are performing quite well financially. The auto industry, for example, is doing very well in part because they have reduced labor costs dramatically over the last decade -- in fact, General Motors recently reported that its labor manufacturing costs have gone from 30 to 10 percent.

There are two reasons why General Motors, Ford and many others have significantly reduced labor costs. One, perhaps the most obvious, is the advancement of new technologies. Machinery and computers have replaced people throughout most modern facilities. Second, management innovations have reduced the need for labor and as a result require fewer employees. Employee involvement, slim organization structure and work teams have made jobs more interesting, demanding and challenging while reducing the number of individuals needed. Employees are now cross-trained; performing duties outside of their main focus including maintenance, set-up and operations management. They do not have to wait for someone to come to repair a machine or reprogram it; these services are now built into a company's strategic staffing plans.

The implication of the changes in technology and management for job growth

within the field of manufacturing is clear.

There are always going to be fewer jobs

in most manufacturing plants.

While there will be some growth, it will only extend to the degree that it is absolutely necessary in order for an organization to increase its production levels. Even when companies need to increase production levels, most are likely to add very few workers as they have learned to get along with less. Ironically, this has cost but also saved U.S. jobs. Without the management innovations and technology advancements that have been adopted by U.S. corporations even more jobs would have been lost to low wage countries.

Some might pose the question: what about the jobs that have been off shored?Will they come back? This may happen to a limited degree however, many of these are low valued added jobs that are best done in low wage economies only likely to return to the U.S. if they can be completed at an inexpensive rate that works alongside new technologies and management practices.

Overall, the combination of new practices has significantly transformed manufacturing in the U.S. Today, much of the manufacturing work that remains is high valued added and increasingly requires skilled labor. Gone to less developed, low wage economies are the labor intensive and low value added manufacturing positions that once accounted for

many U.S. manufacturing jobs;

they are not coming back.

The U.S. has to move beyond its focus

on manufacturing jobs

to find the answer

to our unemployment problem.

low valued added jobs that are best done

. in low wage economies

Edward E. Lawler III is a distinguished professor of business at the University of Southern California (USC) Marshall School of Business and founder/director of the University’s Center for Effective Organizations (CEO), one of the country’s leading management research organizations.

He’s authored more than 40 books, including his most recent –

- Management Reset: Organizing for Sustainable Effectiveness

(Jossey-Bass, March 2011).

(2011) Jossey-Bass, CA

In their earlier book, Built to Change, a title that read more like a ‘me too’ product, Lawler and Worley had already challenged conventional thinking around organizational agility and response to change. Designs for organizational excellence in the past meant that a goal for change was constant relative to the time in which change could be accomplished. Efforts in adaptation would be around such goals that fostered relatively newer forms of stability. The root for change effectiveness was identified as the need for stability. That structure, strategy and organizational design had to simultaneously change as the environment changed was called out in Built to Change.

Even as they discovered the effects management practices were having on institutions at large, they realized that some of man’s irreversible choices were depleting finite resources. Sustainability of organizations now became inextricably intertwined with leadership as a team sport and shared goals and values were significant part of that journey.

Management Reset is about embracing the complexity required to be a sustainable organization.

“It is now clear that financial sustainability is a necessary but insufficient organization objective”, write the authors, thus opening up the possibility of reading through some refreshingly fundamental aspects of designing organizations for economic, social and environmental sustainability.

Written for consultants who advise organizations on strategy and change, the authors want it to be read by academics who are concerned with organization design, organization development and change. They consider it as the third major management reset since the beginning of the twentieth century.

Command and Control (CCO) organizations responded to volume needs of capitalistic markets with bureaucratic controls. High Involvement organizations (HIO) showed the advantages of tapping into human beings latent potential in the second management reset. CCOs and HIOs are designed to be stable. Few have appreciated thus far, how sharply we will have to deviate from management approaches of the past in order to be sustainable. Fewer have explored its impact for strategy, structure, decision-making practices, human resource management and leadership.

A Sustainably Managed Organisation (SMO) requires an integrated approach, far different from the fashion equivalent of putting lipstick on a pig. The mindset for the CCO and the HIO is normally one of compliance, and the tension of interests between shareholders and larger stakeholders like society and natural resources remains. Hence the case in this book is made for the integration between agility of the HIO and responsibility of the SMO.

Forces of Agility

Technology – Virtual presence technology is proliferating, closing the distance between people and challenging the concept of time. The amount of research and knowledge produced is also increasing, pushing the boundaries of change and innovation.

Globalization –The disappearance of host and parent status in manufacturing and research centers have forced organizations to continuously to modify services and products they offer as also where and how to produce them to enable access for their customers

Workforce – Gender, national origin, race, age and language have come to acquire more central place for attribution to success. Life-span of employment varies not merely by economic development of the host economy, but also with sector of employment, age discrimination laws and financial wherewithal to retire

Talent, Intellectual Property, Brand Image are more perishable and require a different mind-set to manage as these feed off each other. Knowledge work is harder to direct, measure and perform.

Designing for outcomes that may ensure Organizational agility required to evolve from CCOs and HIOs into SCOs are the basic tenets of this book

The authors quote potential for being SMOs from among their researched organizations. Patagonia, PepsiCo and Unilever are featured for example.

The book points towards

:

A) the way Value is created which includes strategies for sustainable effectiveness

as against sustainable competitive advantages

B) the way work is organized, including Governance at the Board, Structures for Operations and sustainable work systems, as against conventional control through job designs;

the focus being on organizational designs that dynamically adapt to business environments

C) the way People are treated which includes new notions on Performance,

reward systems and management of Talent for SMOs and

d) the way Behavior is guided which entails orchestrating performance through leadership as teamwork, and the transformation to sustainable management where followership is imperative to leadership as well.

Contrary to popular perception, and much against conventional intuition, research on leadership development is quite clear that experience is the best developer of managers and leaders.

The development of ‘crucible’ jobs that could provide learning experiences may seem outright first choices for learning designs, but one may fail to realize that moving people from one job to the next rapidly will rob people of requisite learning to overcome quick-fix mentalities - the kind that gloss over long-term impact of actions. What brought us here in terms of short-term thinking that focused selectively on the customer and shareholder will in this sense prevent us from reaching the SMO prototype.

Change Acceleration towards SMO transformations is facilitated by models, language, frameworks and practices that help people talk about and discuss the relevance of change to their work. Formal processes that facilitate learning from experience will be the key to both crucible experiences and the realization of the emerging identity of the organization. The interconnectedness of different social systems in a global world is brought about clearly in this book. It may take an evolved leadership team to embrace the message in this book.

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

Apple has become one of the best-known, most admired and most imitated companies on earth, in part through an unrelenting mastery of global operations. Last year, it earned over $400,000 in profit per employee, more than Goldman Sachs, Exxon Mobil or Google.

However, what has vexed Mr. Obama as well as economists and policy makers is that Apple — and many of its high-technology peers — are not nearly as avid in creating American jobs as other famous companies were in their heydays.

Apple employs 43,000 people in the United States and 20,000 overseas, a small fraction of the over 400,000 American workers at General Motors in the 1950s, or the hundreds of thousands at General Electric in the 1980s. Many more people work for Apple’s contractors: an additional 700,000 people engineer, build and assemble iPads, iPhones and Apple’s other products. But almost none of them work in the United States. Instead, they work for foreign companies in Asia, Europe and elsewhere, at factories that almost all electronics designers rely upon to build their wares.

“Apple’s an example of why it’s so hard to create middle-class jobs in the U.S. now,” said Jared Bernstein, who until last year was an economic adviser to the White House.

“If it’s the pinnacle of capitalism, we should be worried.”

Apple executives say that going overseas, at this point, is their only option. One former executive described how the company relied upon a Chinese factory to revamp iPhone manufacturing just weeks before the device was due on shelves. Apple had redesigned the iPhone’s screen at the last minute, forcing an assembly line overhaul. New screens began arriving at the plant near midnight.

A foreman immediately roused 8,000 workers inside the company’s dormitories, according to the executive. Each employee was given a biscuit and a cup of tea, guided to a workstation and within half an hour started a 12-hour shift fitting glass screens into beveled frames. Within 96 hours, the plant was producing over 10,000 iPhones a day.

“The speed and flexibility is breathtaking,” the executive said.

“There’s no American plant that can match that.”

Similar stories could be told about almost any electronics company — and outsourcing has also become common in hundreds of industries, including accounting, legal services, banking, auto manufacturing and pharmaceuticals.

But while Apple is far from alone, it offers a window into why the success of some prominent companies has not translated into large numbers of domestic jobs. What’s more, the company’s decisions pose broader questions about what corporate America owes Americans as the global and national economies are increasingly intertwined.

“Companies once felt an obligation to support American workers, even when it wasn’t the best financial choice,” said Betsey Stevenson, the chief economist at the Labor Department until last September. “That’s disappeared. Profits and efficiency have trumped generosity.”

Companies and other economists say that notion is naïve. Though Americans are among the most educated workers in the world, the nation has stopped training enough people in the mid-level skills that factories need, executives say.

To thrive, companies argue they need to move work where it can generate enough profits to keep paying for innovation. Doing otherwise risks losing even more American jobs over time, as evidenced by the legions of once-proud domestic manufacturers — including G.M. and others — that have shrunk as nimble competitors have emerged.

Apple was provided with extensive summaries of The New York Times’s reporting for this article, but the company, which has a reputation for secrecy, declined to comment.

This article is based on interviews with more than three dozen current and former Apple employees and contractors — many of whom requested anonymity to protect their jobs — as well as economists, manufacturing experts, international trade specialists, technology analysts, academic researchers, employees at Apple’s suppliers, competitors and corporate partners, and government officials.

Privately, Apple executives say the world is now such a changed place that it is a mistake to measure a company’s contribution simply by tallying its employees — though they note that Apple employs more workers in the United States than ever before.

They say Apple’s success has benefited the economy by empowering entrepreneurs and creating jobs at companies like cellular providers and businesses shipping Apple products. And, ultimately, they say curing unemployment is not their job.

“We sell iPhones in over a hundred countries,”

a current Apple executive said.

“We don’t have an obligation to solve America’s problems.

Our only obligation is making the best product possible.”

‘I Want a Glass Screen’

In 2007, a little over a month before the iPhone was scheduled to appear in stores, Mr. Jobs beckoned a handful of lieutenants into an office. For weeks, he had been carrying a prototype of the device in his pocket.

Mr. Jobs angrily held up his iPhone, angling it so everyone could see the dozens of tiny scratches marring its plastic screen, according to someone who attended the meeting. He then pulled his keys from his jeans.

People will carry this phone in their pocket, he said. People also carry their keys in their pocket. “I won’t sell a product that gets scratched,” he said tensely. The only solution was using unscratchable glass instead. “I want a glass screen, and I want it perfect in six weeks.”

After one executive left that meeting, he booked a flight to Shenzhen, China. If Mr. Jobs wanted perfect, there was nowhere else to go.

For over two years, the company had been working on a project — code-named Purple 2 — that presented the same questions at every turn: how do you completely reimagine the cellphone? And how do you design it at the highest quality — with an unscratchable screen, for instance — while also ensuring that millions can be manufactured quickly and inexpensively enough to earn a significant profit?

The answers, almost every time, were found outside the United States. Though components differ between versions, all iPhones contain hundreds of parts, an estimated 90 percent of which are manufactured abroad. Advanced semiconductors have come from Germany and Taiwan, memory from Korea and Japan, display panels and circuitry from Korea and Taiwan, chipsets from Europe and rare metals from Africa and Asia. And all of it is put together in China.

In its early days, Apple usually didn’t look beyond its own backyard for manufacturing solutions. A few years after Apple began building the Macintosh in 1983, for instance, Mr. Jobs bragged that it was “a machine that is made in America.” In 1990, while Mr. Jobs was running NeXT, which was eventually bought by Apple, the executive told a reporter that “I’m as proud of the factory as I am of the computer.” As late as 2002, top Apple executives occasionally drove two hours northeast of their headquarters to visit the company’s iMac plant in Elk Grove, Calif.

But by 2004, Apple had largely turned to foreign manufacturing.

Guiding that decision was Apple’s operations expert, Timothy D. Cook, who replaced Mr. Jobs as chief executive last August, six weeks before Mr. Jobs’s death. Most other American electronics companies had already gone abroad, and Apple, which at the time was struggling, felt it had to grasp every advantage.

In part, Asia was attractive because the semiskilled workers there were cheaper. But that wasn’t driving Apple. For technology companies, the cost of labor is minimal compared with the expense of buying parts and managing supply chains that bring together components and services from hundreds of companies.

For Mr. Cook, the focus on Asia “came down to two things,” said one former high-ranking Apple executive. Factories in Asia “can scale up and down faster” and “Asian supply chains have surpassed what’s in the U.S. ” The result is that “we can’t compete at this point,” the executive said.

The impact of such advantages became obvious as soon as Mr. Jobs demanded glass screens in 2007.

For years, cellphone makers had avoided using glass because it required precision in cutting and grinding that was extremely difficult to achieve. Apple had already selected an American company, Corning Inc., to manufacture large panes of strengthened glass. But figuring out how to cut those panes into millions of iPhone screens required finding an empty cutting plant, hundreds of pieces of glass to use in experiments and an army of midlevel engineers. It would cost a fortune simply to prepare.

Then a bid for the work arrived from a Chinese factory.

When an Apple team visited, the Chinese plant’s owners were already constructing a new wing. “This is in case you give us the contract,” the manager said, according to a former Apple executive. The Chinese government had agreed to underwrite costs for numerous industries, and those subsidies had trickled down to the glass-cutting factory. It had a warehouse filled with glass samples available to Apple, free of charge. The owners made engineers available at almost no cost. They had built on-site dormitories so employees would be available 24 hours a day.

The Chinese plant got the job.

“The entire supply chain is in China now,” said another former high-ranking Apple executive. “You need a thousand rubber gaskets? That’s the factory next door. You need a million screws? That factory is a block away. You need that screw made a little bit different? It will take three hours.”

In Foxconn City

Inside Foxconn City

An eight-hour drive from that glass factory is a complex, known informally as Foxconn City, where the iPhone is assembled. To Apple executives, Foxconn City was further evidence that China could deliver workers — and diligence — that outpaced their American counterparts.

That’s because nothing like Foxconn City

exists in the United States.

The facility has 230,000 employees, many working six days a week, often spending up to 12 hours a day at the plant. Over a quarter of Foxconn’s work force lives in company barracks and many workers earn less than $17 a day. When one Apple executive arrived during a shift change, his car was stuck in a river of employees streaming past. “The scale is unimaginable,” he said.

Foxconn employs nearly 300 guards to direct foot traffic so workers are not crushed in doorway bottlenecks. The facility’s central kitchen cooks an average of three tons of pork and 13 tons of rice a day. While factories are spotless, the air inside nearby teahouses is hazy with the smoke and stench of cigarettes.

Foxconn Technology has dozens of facilities in Asia and Eastern Europe, and in Mexico and Brazil, and it assembles an estimated 40 percent of the world’s consumer electronics for customers like Amazon, Dell, Hewlett-Packard, Motorola, Nintendo, Nokia, Samsung and Sony.

“They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”

In mid-2007, after a month of experimentation, Apple’s engineers finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. Since then, Foxconn has assembled over 200 million more.

Foxconn, in statements, declined to speak about specific clients.

“Any worker recruited by our firm is covered by a clear contract outlining terms and conditions and by Chinese government law that protects their rights,” the company wrote. Foxconn “takes our responsibility to our employees very seriously and we work hard to give our more than one million employees a safe and positive environment.”

The company disputed some details of the former Apple executive’s account, and wrote that a midnight shift, such as the one described, was impossible “because we have strict regulations regarding the working hours of our employees based on their designated shifts, and every employee has computerized timecards that would bar them from working at any facility at a time outside of their approved shift.” The company said that all shifts began at either 7 a.m. or 7 p.m., and that employees receive at least 12 hours’ notice of any schedule changes.

Foxconn employees, in interviews, have challenged those assertions.

Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.

In China, it took 15 days.

Companies like Apple “say the challenge in setting up U.S. plants is finding a technical work force,” said Martin Schmidt, associate provost at the Massachusetts Institute of Technology. In particular, companies say they need engineers with more than high school, but not necessarily a bachelor’s degree. Americans at that skill level are hard to find, executives contend. “They’re good jobs, but the country doesn’t have enough to feed the demand,” Mr. Schmidt said.

Some aspects of the iPhone are uniquely American. The device’s software, for instance, and its innovative marketing campaigns were largely created in the United States.Apple recently built a $500 million data center in North Carolina. Crucial semiconductors inside the iPhone 4 and 4S are manufactured in an Austin, Tex., factory by Samsung, of South Korea.

But even those facilities are not enormous sources of jobs. Apple’s North Carolina center, for instance, has only 100 full-time employees. The Samsung plant has an estimated 2,400 workers.

“If you scale up from selling one million phones to 30 million phones, you don’t really need more programmers,” said Jean-Louis Gassée, who oversaw product development and marketing for Apple until he left in 1990. “All these new companies — Facebook, Google, Twitter — benefit from this. They grow, but they don’t really need to hire much.”

It is hard to estimate how much more it would cost to build iPhones in the United States. However, various academics and manufacturing analysts estimate that because labor is such a small part of technology manufacturing, paying American wages would add up to $65 to each iPhone’s expense. Since Apple’s profits are often hundreds of dollars per phone, building domestically, in theory, would still give the company a healthy reward.

But such calculations are, in many respects, meaningless because building the iPhone in the United States would demand much more than hiring Americans — it would require transforming the national and global economies. Apple executives believe there simply aren’t enough American workers with the skills the company needs or factories with sufficient speed and flexibility. Other companies that work with Apple, like Corning, also say they must go abroad.

Manufacturing glass for the iPhone revived a Corning factory in Kentucky, and today, much of the glass in iPhones is still made there. After the iPhone became a success, Corning received a flood of orders from other companies hoping to imitate Apple’s designs. Its strengthened glass sales have grown to more than $700 million a year, and it has hired or continued employing about 1,000 Americans to support the emerging market.

But as that market has expanded, the bulk of Corning’s strengthened glass manufacturing has occurred at plants in Japan and Taiwan.

“Our customers are in Taiwan, Korea, Japan and China,” said James B. Flaws, Corning’s vice chairman and chief financial officer. “We could make the glass here, and then ship it by boat, but that takes 35 days. Or, we could ship it by air, but that’s 10 times as expensive. So we build our glass factories next door to assembly factories, and those are overseas.”

Corning was founded in America 161 years ago and its headquarters are still in upstate New York. Theoretically, the company could manufacture all its glass domestically. But it would “require a total overhaul in how the industry is structured,” Mr. Flaws said. “The consumer electronics business has become an Asian business. As an American, I worry about that, but there’s nothing I can do to stop it. Asia has become what the U.S. was for the last 40 years.”

Middle-Class Jobs Fade

The first time Eric Saragoza stepped into Apple’s manufacturing plant in Elk Grove, Calif., he felt as if he were entering an engineering wonderland.

It was 1995, and the facility near Sacramento employed more than 1,500 workers. It was a kaleidoscope of robotic arms, conveyor belts ferrying circuit boards and, eventually, candy-colored iMacs in various stages of assembly. Mr. Saragoza, an engineer, quickly moved up the plant’s ranks and joined an elite diagnostic team. His salary climbed to $50,000. He and his wife had three children. They bought a home with a pool.

“It felt like, finally, school was paying off,” he said. “I knew the world needed people who can build things.”

At the same time, however, the electronics industry was changing, and Apple — with products that were declining in popularity — was struggling to remake itself. One focus was improving manufacturing. A few years after Mr. Saragoza started his job, his bosses explained how the California plant stacked up against overseas factories: the cost, excluding the materials, of building a $1,500 computer in Elk Grove was $22 a machine. In Singapore, it was $6. In Taiwan, $4.85. Wages weren’t the major reason for the disparities. Rather it was costs like inventory and how long it took workers to finish a task.

“We were told we would have to do 12-hour days, and come in on Saturdays,

” Mr. Saragoza said. “I had a family. I wanted to see my kids play soccer.”

Modernization has always caused

some kinds of jobs to change or disappear.

As the American economy transitioned from agriculture to manufacturing and then to other industries, farmers became steelworkers, and then salesmen and middle managers. These shifts have carried many economic benefits, and in general, with each progression, even unskilled workers received better wages and greater chances at upward mobility.

But in the last two decades, something more fundamental has changed, economists say. Midwage jobs started disappearing. Particularly among Americans without college degrees, today’s new jobs are disproportionately in service occupations — at restaurants or call centers, or as hospital attendants or temporary workers — that offer fewer opportunities for reaching the middle class.

Even Mr. Saragoza, with his college degree, was vulnerable to these trends. First, some of Elk Grove’s routine tasks were sent overseas. Mr. Saragoza didn’t mind. Then the robotics that made Apple a futuristic playground allowed executives to replace workers with machines. Some diagnostic engineering went to Singapore. Middle managers who oversaw the plant’s inventory were laid off because, suddenly, a few people with Internet connections were all that were needed.

Mr. Saragoza was too expensive for an unskilled position. He was also insufficiently credentialed for upper management. He was called into a small office in 2002 after a night shift, laid off and then escorted from the plant. He taught high school for a while, and then tried a return to technology. But Apple, which had helped anoint the region as “Silicon Valley North,” had by then converted much of the Elk Grove plant into an AppleCare call center, where new employees often earn $12 an hour.

There were employment prospects in Silicon Valley, but none of them panned out. “What they really want are 30-year-olds without children,” said Mr. Saragoza, who today is 48, and whose family now includes five of his own.

After a few months of looking for work, he started feeling desperate. Even teaching jobs had dried up. So he took a position with an electronics temp agency that had been hired by Apple to check returned iPhones and iPads before they were sent back to customers. Every day, Mr. Saragoza would drive to the building where he had once worked as an engineer, and for $10 an hour with no benefits, wipe thousands of glass screens and test audio ports by plugging in headphones.

Paydays for Apple

As Apple’s overseas operations and sales have expanded, its top employees have thrived. Last fiscal year, Apple’s revenue topped $108 billion, a sum larger than the combined state budgets of Michigan, New Jersey and Massachusetts. Since 2005, when the company’s stock split, share prices have risen from about $45 to more than $427.

Some of that wealth has gone to shareholders. Apple is among the most widely held stocks, and the rising share price has benefited millions of individual investors, 401(k)’s and pension plans. The bounty has also enriched Apple workers. Last fiscal year, in addition to their salaries, Apple’s employees and directors received stock worth $2 billion and exercised or vested stock and options worth an added $1.4 billion.

The biggest rewards, however, have often gone to Apple’s top employees. Mr. Cook, Apple’s chief, last year received stock grants — which vest over a 10-year period — that, at today’s share price, would be worth $427 million, and his salary was raised to $1.4 million. In 2010, Mr. Cook’s compensation package was valued at $59 million, according to Apple’s security filings.

A person close to Apple argued that the compensation received by Apple’s employees was fair, in part because the company had brought so much value to the nation and world. As the company has grown, it has expanded its domestic work force, including manufacturing jobs. Last year, Apple’s American work force grew by 8,000 people.

While other companies have sent call centers abroad, Apple has kept its centers in the United States. One source estimated that sales of Apple’s products have caused other companies to hire tens of thousands of Americans. FedEx and United Parcel Service, for instance, both say they have created American jobs because of the volume of Apple’s shipments, though neither would provide specific figures without permission from Apple, which the company declined to provide.

“We shouldn’t be criticized for using Chinese workers,” a current Apple executive said. “The U.S. has stopped producing people with the skills we need.”

What’s more, Apple sources say the company has created plenty of good American jobs inside its retail stores and among entrepreneurs selling iPhone and iPad applications.

After two months of testing iPads, Mr. Saragoza quit. The pay was so low that he was better off, he figured, spending those hours applying for other jobs. On a recent October evening, while Mr. Saragoza sat at his MacBook and submitted another round of résumés online, halfway around the world a woman arrived at her office. The worker, Lina Lin, is a project manager in Shenzhen, China, at PCH International, which contracts with Apple and other electronics companies to coordinate production of accessories, like the cases that protect the iPad’s glass screens. She is not an Apple employee. But Mrs. Lin is integral to Apple’s ability to deliver its products.

Mrs. Lin earns a bit less than what Mr. Saragoza was paid by Apple. She speaks fluent English, learned from watching television and in a Chinese university. She and her husband put a quarter of their salaries in the bank every month. They live in a 1,080-square-foot apartment, which they share with their in-laws and son.

“There are lots of jobs,” Mrs. Lin said. “Especially in Shenzhen.”

Innovation’s Losers

Toward the end of Mr. Obama’s dinner last year with Mr. Jobs and other Silicon Valley executives, as everyone stood to leave, a crowd of photo seekers formed around the president. A slightly smaller scrum gathered around Mr. Jobs. Rumors had spread that his illness had worsened, and some hoped for a photograph with him, perhaps for the last time.

Eventually, the orbits of the men overlapped. “I’m not worried about the country’s long-term future,” Mr. Jobs told Mr. Obama, according to one observer. “This country is insanely great. What I’m worried about is that we don’t talk enough about solutions.”

At dinner, for instance, the executives had suggested that the government should reform visa programs to help companies hire foreign engineers. Some had urged the president to give companies a “tax holiday” so they could bring back overseas profits which, they argued, would be used to create work. Mr. Jobs even suggested it might be possible, someday, to locate some of Apple’s skilled manufacturing in the United States if the government helped train more American engineers.

Economists debate the usefulness of those and other efforts, and note that a struggling economy is sometimes transformed by unexpected developments. The last time analysts wrung their hands about prolonged American unemployment, for instance, in the early 1980s, the Internet hardly existed. Few at the time would have guessed that a degree in graphic design was rapidly becoming a smart bet, while studying telephone repair a dead end.

What remains unknown, however, is whether the United States will be able to leverage tomorrow’s innovations into millions of jobs.

In the last decade, technological leaps in solar and wind energy, semiconductor fabrication and display technologies have created thousands of jobs. But while many of those industries started in America, much of the employment has occurred abroad. Companies have closed major facilities in the United States to reopen in China. By way of explanation, executives say they are competing with Apple for shareholders. If they cannot rival Apple’s growth and profit margins, they won’t survive.

“New middle-class jobs will eventually emerge,” said Lawrence Katz, a Harvard economist. “Butwill someone in his 40s have the skills for them?Or will he be bypassed for a new graduate and never find his way back into the middle class?”

The pace of innovation, say executives from a variety of industries, has been quickened by businessmen like Mr. Jobs. G.M. went as long as half a decade between major automobile redesigns. Apple, by comparison, has released five iPhones in four years, doubling the devices’ speed and memory while dropping the price that some consumers pay.

Before Mr. Obama and Mr. Jobs said goodbye, the Apple executive pulled an iPhone from his pocket to show off a new application — a driving game — with incredibly detailed graphics. The device reflected the soft glow of the room’s lights. The other executives, whose combined worth exceeded $69 billion, jostled for position to glance over his shoulder. The game, everyone agreed, was wonderful.

An article on Sunday about the reasons iPhones are largely produced overseas omitted a passage immediately after the second continuation, from Page A22 to Page A23, in one edition. The full passage should have read: “Another critical advantage for Apple was that China provided engineers at a scale the United States could not match. Apple’s executives had estimated that about 8,700 industrial engineers were needed to oversee and guide the 200,000 assembly-line workers eventually involved in manufacturing iPhones. The company’s analysts had forecast it would take as long as nine months to find that many qualified engineers in the United States.”

A version of this article appeared in print on January 22, 2012, on page A1 of the New York edition with the headline: How U.S. Lost Out On iPhone Work.

Can Manufacturing Jobs Come Back?

What We Should Learn From Apple and Foxconn

Apple aficionados suffered a blow a couple of weeks ago. All of those beautiful products, it turns out, are the product of an industrial complex that is nothing if not one step removed from slave labor.

But of course there is nothing new here. Walmart has long prospered as a company that found ways to drive down the cost of stuff that Americans want. And China has long been the place where companies to go to drive down cost.

For several decades, dating back to the post World War II years, relatively unfettered access to the American consumer has been the means for pulling Asian workers out of deep poverty. Japan emerged as an industrial colossus under the tutelage of Edward Deming. The Asian tigers came next. Vietnam and Sri Lanka have nibbled around the edges, while China embraced the export-led economic development model under Deng Xiaoping.

While Apple users have been beating their breasts over the revelations of labor conditions and suicides that sullied their glass screens, the truth is that Foxconn is just the most recent incarnation of outsourced manufacturing plants -- textiles and Nike shoes come to mind -- where working conditions are below American standards.

While the Apple-Foxconn story has focused attention on the plight of workers living in dormitories who can be summoned to their work stations in a manner of minutes, the story has also become part of the debate about whether the U.S. should seek to bring back manufacturing jobs or should instead accept the conclusions reached by some economists that not only does America not need manufacturing jobs, but it can no longer expect to have them.

Nobel laureate Joseph Stiglitz argued recently that our difficulties recovering from the 2008 collapse are a function of our migration from a manufacturing to a service economy.

While this migration has been ongoing for years,

Stiglitz has concluded that the trend is irreversible.

His historical metaphor is the Great Depression, which he suggests was prolonged because the nation was in the midst of a permanent transition from an agrarian economy to manufacturing, as a revolution in farm productivity required a large segment of the labor force to leave the farm.

The problem with this deterministic conclusion that America can no longer support a manufacturing sector is that it seems to ignore the facts surrounding the decline that we have experienced. In his recent article, Stiglitz notes that at the beginning of the Great Depression, one-fifth of all Americans worked on farms, while today "2 percent of Americans produce more food than we can consume." This is a stark contrast with trends in the U.S. manufacturing sector. Manufacturing employment, which approximated 18.7 million in 1980 has declined by 37%, or 7 million jobs, in the ensuing years. However, the increase in labor productivity over that timeframe -- 8% in real terms -- explains little of the decline. Unlike the comparison with agriculture, where we continue to produce more than we consume, most of the decline in manufacturing jobs correlated with the steady increase in our imports of manufactured goods and our steadily growing merchandise trade deficit.

The chart below, based on data from the Bureau of Economic Analysis, illustrates the growth in personal spending on manufactured goods in the United States over the past three decades, and the parallel growth in the share of that spending that is on imported goods. These changes happened over a fifty-year period. Going back to the 1960s, we imported about 10% of the stuff we buy. By the end of the 1970s -- a period of significant declines in core industries such as steel and automobiles -- this number grew to over 25%. As illustrated here, the trend continued to the current day, and we now import around 60% of the stuff we buy.

Over the same timeframe, as illustrated below, the merchandise trade deficit -- the value of goods we import less the value we export -- exploded. By the time of the 2008 collapse, the trade deficit in manufactured goods translated into 3.5 million "lost" jobs, if one applies a constant metric of labor productivity to the value of that trade deficit.

This is where Stiglitz' comparison with the Depression era migration from an agrarian economy breaks down. As he duly notes, the economics of food production has changed, and today America's agricultural sector feeds the nation and sustains a healthy trade surplus as well, with a far smaller share of the American workforce. In contrast, the decline in manufacturing jobs reflects the opening of world labor markets. Unlike agriculture, we are not self-supporting in manufactured goods, we have simply decided to buy abroad what we once made at home.

This shift has been embraced across our society.

For private industry, outsourcing to Asia has been driven by profit-maximizing behavior and the pressures of surviving in competitive markets. For consumers, innovations in retail from Walmart to Amazon.com have fed the urge to get the greatest value for the lowest price. And for politicians -- Democrats and Republicans alike -- embracing globalization was part of the post-Cold War tradeoff: We open our markets, and the world competes economically and reduces the threat of nuclear conflict.

The notion that American industry, consumers and politicians were co-conspiring in the destruction of the American working class was a discussion relegated to the margins of public discourse, championed among others by union leaders, Dennis Kucinich on the left, Pat Buchanan on the right and Ross Perot, while largely dismissed by the mainstream media.

While Apple has been pilloried from National Public Radio to the New York Times for its effective support of a slave economy, most electronics consumer goods are now imported. The irony of the Apple story is that the Chinese labor content may well not be the cost driver that we presume it to be. As in many other industries, the costs of what is in the box can be a relatively small share of total costs, when product development, marketing, packaging and profits are taken into account.

This, of course, is why China is not particularly happy with their role in the Apple supply chain. When the profits of Apple products are divided up, far more of it flows to Cupertino than to Chengdu. And that is the reality of modern manufacturing. Based on National Science Foundation data on the value chain of the iPad, for example, final assembly in China captures only $8 of the $424 wholesale price. The U.S. captures $150 for product design and marketing, as well as $12 for manufactured components, while other nations, including Japan, Korea and the Taiwan, capture $76 for other manufactured components.

If anything, the NSF data -- and China's chagrine -- reflect a world in which the economic returns to design and innovation far exceed the benefits that accrue to the line workers who manufacture the product. This is one part of the phenomenon of growing inequality, and would seem to mitigate the complaint that is often made that America no longer "makes things." We may not make things, but we think them up and as the NSF data suggests, to the designers go the spoils.

Yet there is no fundamental reason that the decline in manufacturing jobs in America should be deemed inevitable and permanent. For all the talk about the number of engineers in China, the fundamental issue remains price. As a friend who is a consulting engineer who works with Apple in China has commented, "Yeah, they have engineers, but the driver is cost, cost, cost. And the labor quality is awful. We lose a lot of product and have to stay on top of everything, but at $27 per day, you can afford a lot of management."

This argument conflicts with Stiglitz deterministic thesis. Just as manufacturing jobs left the United States, they can come back as economic conditions change. As wage rates rise in other countries, one competitive advantage of outsourcing shrinks. And if nations -- from China to Taiwan -- migrate away from their practice of pegging their currencies to the dollar, foreign currency risk exposure will offset some of the cost advantages of outsourcing. And today, as newly industrialized nations like Brazil have seen their own manufacturing sectors ravaged by mercantilist competitors, there is a growing understanding for the need for order and fair rules to govern the forces of globalization.

The Apple-Foxconn affair spooked consumers of Apple products -- at least for a news cycle or two. Like Claude Rains in Rick's Cabaret, we were shocked to confront the reality of labor conditions in China. But the story was less about China than about us. That Foxconn could put eight thousand workers to work within thirty minutes to accommodate a last minute design change by Steve Jobs was not -- as Jobs suggested in a meeting with President Obama -- an argument for why those jobs could never come back to America, but rather it was illustrative of the astonishing narcissism of the Apple world.

It is true, no American factory could deliver for Apple as Foxconn did. But on the other hand, there really was no need to. That story was less about what Foxconn could deliver than what Foxconn's customer had the audacity to demand.

This story raised the question of whether we care where our products are made. The answer is unclear, however many Americans have long cared about purchasing cars made in this country, and Clint Eastwood's Super Bowl ad has raised awareness of this question. What is clear is that if Americans care about where their products are made, companies will care. Therefore, even as the president promoted tax credits for insourcing -- the new word for bringing those jobs back -- perhaps another step would be to build on the power of choice. Perhaps not all Americans care where their products are made, but many certainly do. But even if one does care, it tends to be difficult to find out.

Perhaps a simple step would be for companies to provide that information to consumers. Even if it was voluntary labeling, knowing who chose to provide information to their customers would tell many of us all we need to know. Then we could find out whether the Apple story really changed anything, and whether consumers might be willing to take more into account that the last dollar saved if it enables us to sustain a diversified economy into the future.

For five centuries, our continent has been able to invent the ideas and the goods that have transformed the world, yet it seems to have lost the secret of their manufacture. It no longer knows if it is capable of inventing the world of tomorrow; it doesn’t even know if it has a common future any more.

Of the two terms of Schumpeter’s formula summarizing capitalism, «creative destruction», we have forgotten the former, that is to say, creation, leaving us only with the latter, destruction. For many, unemployment has become the norm. The hope of becoming a part of society through work has evaporated. Extreme ideologies bloom, though one sole look at the world would be enough to demonstrate the absurdity of all of them. Our societies thought they had built a balance in which every successive generation could legitimately hope that its progeny would have a better life. Today they are convinced that we can no longer keep this promise. Our systems of social negotiations have broken down, and our systems of social protection are threatened. Belief in progress has faded. Many perceive technical progress as a danger, economic progress as a lie, social progress as a mirage, democratic progress as an illusion.

We are living through a turning point, in great confusion. Nothing of what seemed obvious yesterday is evident today. Nor are there any signs to tell us what future certainties will be. The great points of reference — the Nation, the State, Morality — seem to have disappeared. The great hopes of tomorrow remain invisible.

We must struggle against this doubt, so devastating for a Europe whose history was built, precisely, upon progress.

When a majority of the population comes to the point of thinking that tomorrow may well be worse than today, the only possible strategy it can see becomes that of preserving what exists. Everyone wants things to remain frozen as they are as long as possible, in order to preserve his own interests, which leads to hampering, preventing, all change. Fear is the greatest ally of conservatives. It feeds the rise of egoism: the social egoism of those who can or believe they can succeed in spite of others or against others; ethnic egoism that rejects the other, whom they consider responsible for all ills; and the national egoism of each individual country persuaded it should prevail over its partners.

So how can one approach tomorrow in a new way?

We must invent a new world.

We must recover the meaning of progress, not progress as an automatic reflex or an empty word, but as an act of will. We must return to the idea that it is possible to act in order to influence things. Never become resigned, never submit, never retreat. We must not see the market as a more effective means of coordinating individual actions. No society can organize itself simply by virtue of the market. Thuswe must be wary of the liberal illusion of a society that has no need to think out its future or define its regulations. On the contrary, it is up to politics to reinvent itself, to define new rules and new institutions.

Many believe that in a so-called global and liberal economy, governments should have no power. They are mistaken. The crisis andreactions to the crisis demonstrate that this is a fallacy, that there exist good policies and bad ones, that there exist good and bad regulations.

We must act in three areas

:

Production, in other words, growth. We must tell ourselves that without growth, there can be no progress and no reduction of inequality.

Solidarity, which is a method as much as it is a necessity. There is no progress if it does not profit all and if it is not accepted by all. Solidarity in Europe is not only a part of our glorious past, it is the key to our tomorrow.

Public action, for the genius of Europe is first of all that of a collective project and a common destiny.

Production and growth, to begin with, to reach full employment.

That may seem like a utopia, but actually it is not.

The society of full employment we should strive for will not be that of the 60s. It will not be a society without unemployment. But it will be, or it should be, a society in which unemployment is only short-term. A mobile society in which every wage-earner can tell himself he will advance. The contrary of a society where everyone is pigeon-holed to remain in the same profession or at the same rank or level for decades. A society where all of us are perpetually learning or relearning. This implies a radical change in our relation to work and to our crafts and professions.

We must renew our solidarity.

It is the distinctive feature of Europe and of European society. Those who carry the banner of individualism refuse to understand that, in the social contract, we Europeans have a concept much richer than theirs, founded upon the existence of a common good that cannot be reduced to the sum of individual interests. We should be proud of what we have built: adequate medical care available to all, an end to poverty for the aged, solidarity towards those who do not have jobs. An economy more vulnerable to technical change and the appearance of new competition is also harsher. So it demands that those who miss out because of progress can count on the solidarity of those who are benefiting from it.

Finally, we must reinvent public service, public action, that is to say, the role of the State.

What counts is not the amount of taxes paid, it is the comparison between taxes and the quality of public goods and services offered in exchange: education, training, security, roads, railroads, communications infrastructure. It is the State’s capacity to favor the creation of wealth, to ensure its just and efficient redistribution, to reduce inequality.

The key principle upon which this project must depend is that of equality. The rise of unprecedented inequality is characteristic of the present day. It is something new, and it has been with us over a sustained period. To borrow Necker’s phrase, equality was the very idea of the Revolution. Yet today, the force that is affecting and transforming the world is the development of inequality. And it hasn’t slowed down for decades. Inequality between countries, between regions of the world, between social classes, between generations, etc. The result is the dissolution of the feeling of belonging to a common world. A world henceforth undermined by social inequality, the secession of the wealthy, and a revolt of those who feel, conversely, forgotten, despised, rejected or abandoned. And whose sole weapon is their discontent and the power of their indignation.

We must revive what was once the revolutionary plan: equality, in other words, a manner of building society, of producing together, of living together and of breathing life anew into the common good.

As Pierre Rosanvallon put it, it is a question

of refounding a society of equals.

A society in which everyone possesses the same rights, in which each of us is recognized and respected as being as important as the others. A society that allows each one to change his life.

We must also take into consideration the political crisis we are currently experiencing. It is marked not only by political disengagement, abstention, and the rise of extreme ideologies, but also by an institutional crisis. To be more precise, a crisis of the political model. The crisis of the political model is the extreme concentration of power, and in particular the extreme concentration of executive power in the hands of one man, the President of the Republic. The real power of a sole individual versus the actual power of all. It is marked as well by a crisis of decision and a weakened legitimacy of institutions, government, ministers and other authorities.

What is to be done? To undertake a program of institutional reform comparable in its breadth to that of 1958, at the establishment of the 5th Republic. With two main objectives.

To make political decisions more effective and, with this in mind, introduce a dose of proportional representation in elections in order to ensure the best representation possible; reduce by half the number of parliamentary representatives, and outlaw cumulative office; downsize the number of ministers to fifteen, each concentrating on lofty missions of State and thus avoiding the dispersion of public actions, thereby ridding ourselves of that French specificity consisting of incessantly inventing new ministries whose missions are vague but whose uselessness is certain.

Take up the challenge of democratic representation. The historic principle of representation, the idea according to which the people exercise real power through the intermediary of their elected representatives, can only function if we recognize that two principles have proven largely fictitious. The first is the view that a relative or absolute majority represents the opinion of all. The second is that the ballot represents the opinion of the citizen, whereas the rich diversity of an opinion cannot be reduced to the choice of one person at a given time. The result is a legitimate feeling of not being represented. The demand for better representation must be met with more participation, the submission of governments to intensified surveillance, to more frequent rendering of accounts, to new forms of inspection. It is not possible to keep an eye on every decision, but everyone must be entitled to participate in the collective power through a system of evaluation.

This is the price of the construction of a more just and meaningful society.

that there’s NOT that scope to cut.

Michelle Meyer,

senior economist

at Bank of America Merrill Lynch.

Many economic sectors don’t have much more room to fall

.
A significant factor behind recessions are shifts in demand for major, long-lasting purchases, such as automobiles, furniture and household appliances. In the last recession, sales of those durable goods fell 13 percent, and consumption of nondurable goods — food and clothing, for example — fell less than 4 percent.
.
In the corporate sector, meanwhile, executives say they’re deeply worried by the turmoil in the financial markets. But businesses have adjusted in the past few years in ways that make them less likely to undertake the kind of mass layoffs that were widespread in 2008 and 2009.
.
“Since the onset of the recession, companies have been focused on improving their balance sheets, deleveraging, and increasing productivity,” said Tom McGee, managing partner of Deloitte Growth Enterprise Services, which surveys chief executives of mid-size companies nationwide to gauge the outlook. “We’re not seeing signs that there are mass workforce reductions on the way.”
.
Moreover, the corporate sector’s financial situation is by many measures stronger than it was before the last recession, meaning companies are less likely to be forced to cut workers to stave off bankruptcy. Non-financial U.S. businesses have $15 trillion in cash or investments that could easily be converted to cash on their books, up from $13.7 trillion in 2007.

.
“The economy is not primed for a recession in the sense that before you fall into recession, there’s usually a lot of excess, which means if you have a shock, businesses respond quickly by slashing inventories and cutting workforce and investment,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch. “But they’re running so lean right now that there’s not that scope to cut.”

:
a state or condition of worldwide relevance or impact;

universality, totality

"The next wave of competitors

will dwarf what has come before."

We’re now hurling towards an era called “globality,” a hypercompetitive world in which established Western companies defend turf they used to take for granted, while challengers in developing markets force them to conduct business in brand new ways. We’ll “competing with everyone from everywhere for everything.

Globality means that many companies from many locations are fundamentally changing the way global business operates. It involves many players with many products moving at an eye-popping pace.

“This tsunami will make all the previous waves look like a ripple.”

What exactly is globality? More than a single definition, it is a set of characteristics
:

1. The rise of rapidly developing countries is changing the world of business.
2. A new generation of companies that will be the next Toyotas, Hondas, Wal-Marts, et cetera are descending on current markets fast and hard enough to be termed a “tsunami.”
3. Globalization is over. The era we’re in, called “globality,” will involve companies—especially from Brazil, Russia, India, and China (BRIC)—competing for talent and natural resources all over the world, from small towns to big cities.
4. The rules of success will be very different in the future.
5. Globality is about making the right choices, because you can’t do everything.

1. The rise of rapidly developing countries is changing the world of business.
2. A new generation of companies that will be the next Toyotas, Hondas, Wal-Marts, et cetera are descending on current markets fast and hard enough to be termed a “tsunami.”
3. Globalization is over. The era we’re in, called “globality,” will involve companies—especially from Brazil, Russia, India, and China (BRIC)—competing for talent and natural resources all over the world, from small towns to big cities.
4. The rules of success will be very different in the future.
5. Globality is about making the right choices, because you can’t do everything.

The Top 10 Most Innovative Companies in India

For amassing a trove of biometric identification to activate benefits for millions of Indians. The government office is using multimodal biometrics--fingerprints, iris scans, and photographs--to build the world's most ambitious identity database. A mammoth ecosystem of agencies deploys its open, scalable model, and the robust system can enroll the identities of a million people a day with 99.99% accuracy. It authenticates people over a mobile phone network using a one-time password or their fingerprints (illiteracy is a problem in India). In the process, it enables instant, paperless provisioning of banking services and welfare benefits to millions of Indians who lacked any identification until now. At last count, 450 million Indians had received their new IDs and used them to make 40 million cash transfers. Read more >>

For dialing into the very Indian "missed call" money-saving tactic. ZipDial's marketing and analytics platform is fashioned out of the ingenious practice of escaping a charge by calling and hanging up to convey a predecided message. Its unique business model works by providing a number for brands to publish on their marketing campaigns. So far, ZipDial has targeted 416 million callers for clients like Disney, Dove, and Coca-Cola, which can now text customers about new deals and product launches. India's largest political parties, the Congress and the BJP, have recently signed up, which means ZipDial is now headed for the mainstream. The service just launched in Sri Lanka and Bangladesh, and will soon be in Indonesia and the Philippines. Read more >>

For bringing the Internet to India's vast underconnected masses. Innoz's SMSGyan allows feature-phone users to access the Internet anytime and from anywhere by facilitating their web searches via text messages. The service has processed 1.3 billion queries so far and has more than 120 million active users, mostly in India. But the service is also growing in Africa, the Middle East, and other parts of Asia. Innoz was launched by a group of engineering college dropouts who came upon the idea when they weren't able to search for "How to woo girls" on their very basic phones.

For galvanizing a behavior shift in urban India to care for those in need. Goonj channels excess resources from urban households to impoverished, rural, and disaster-struck areas. In exchange for clothes, furniture, household goods, and medical supplies, village and slum communities self-organize and build schools, roads, and toilet facilities. The company has thus turned used clothes and other second-hand material into currency, successfully leading more than 1,500 such projects in the past three years alone. It recently delivered thousands of tons of material to the floodstruck in the Himalayas, to cyclone victims in eastern Orissa, and to victims of communal violence in central Muzaffarnagar, through a network of schools and nonprofits. In a large country, Goonj is a game-changer, teaching urban Indians when, what, and how to give.

For improving the country's mess of a public-toilet network. Not long ago, Bill Gates let the world know that he was serious about building a better toilet. Eram Scientific Solutions, which makes the Gates Foundation–backed Delight public toilet system, is just proof that the man delivers on his promises. The company's toilet flushes automatically--when people enter, after they leave, and every two hours--to keep tidy, but it also saves energy with motion-sensor lights and fans. Four hundred of them have been installed across the country so far, with a reported 6,000 in the pipeline.

For rethinking conventional cancer drug therapies by applying data analytics. Though it saves lives, chemotherapy--in which enough toxins are pumped into the patient's body to kill malignant cells but spare the host--is still a risky process. Founded by Harvard and MIT researchers, Mitra Biotech's CANScript technology re-creates an artificial environment for a patient's tumor sample and tests various drugs on it directly, allowing the company to arrive at a personalized treatment in less than a week. Mitra has formed partnerships with several Indian hospitals and is eyeing a U.S. entry.

For leveling the playing ground for coders all over the world. Interviewstreet's disruptive platform helps screen and hire programmers through online coding tests and contests, thus matching best performers from around the globe to business titans. Interviewstreet counts Facebook, Amazon, Morgan Stanley, Zynga, and Walmart among its customers, and it recently placed 40 Indian computer-science students in some of the hottest jobs in the Valley just as they were finishing up their degrees.

For putting smiles on thousands of faces with a Starbucks-inspired chain of dental offices. MyDentist is a two-year-old dental chain based in Mumbai and Pune that has brought dimensions of the retail business to dental treatment. With 75 locations throughout the country, which will grow to 150 this year, MyDentist offers efficient care at standard, transparent rates. It's affordable to the underprivileged crowd, such as cab drivers and domestic workers, who live in slum areas: Root canal treatments cost just 2,500 rupees ($40), and 21,000-rupee braces can be paid in 1,500-rupee ($24) installments. The chain treats a whopping 15,000 patients each month.

For smoothing the journey of India's growing but scrappy car rental market. Within a year of its launch, Olacabs has grown to become India's largest car rental brand. Its success lies in the myriad tech solutions it uses to navigate the chaos of India's urban commuter system: Its mobile app lets a user summon a cab with a single click and allows real-time tracking of the cab as it nears. Meanwhile, Olacabs' predictive algorithm helps anticipate demand at different locations and times, monitors traffic and weather conditions, and, after a customer books, accurately predicts the time of arrival. Olacabs currently aggregates 7,500 cars in India's four largest cities and achieves an explosive 25% month-over-month growth rate.

For delivering world-class services and health care to expectant mothers. Despite the ongoing efforts of India's government, the country still lags behind much of the world in infant and maternal mortality rates. Cloudnine, however, has managed to sustain a 0% maternal mortality rate and a 99.72% survival rate across 16,000 deliveries at its five Bangalore-based health-care facilities. The company, which recently scored $16 million in a funding round led by Sequoia Capital, credits its all-hands approach for its success: Its hospitals contain standard pregnancy and neonatal care but also feature specialized units for fetal medicine and workshops for first-time parents.

Sunday, 26 July 2015

The Age of Social Transformation

by Peter F. Drucker

A survey of the epoch that began early in this century, and an analysis of its latest manifestations: an economic order in which knowledge, not labor or raw material or capital, is the key resource; a social order in which inequality based on knowledge is a major challenge; and a polity in which government cannot be looked to for solving social and economic problems.

No century in recorded history has experienced so many social transformations and such radical ones as the twentieth century. They, I submit, may turn out to be the most significant events of this, our century, and its lasting legacy. In the developed free-market countries—which contain less than a fifth of the earth's population but are a model for the rest—work and work force, society and polity, are all, in the last decade of this century, qualitatively and quantitatively different not only from what they were in the first years of this century but also from what has existed at any other time in history: in their configurations, in their processes, in their problems, and in their structures.

Far smaller and far slower social changes in earlier periods triggered civil wars, rebellions, and violent intellectual and spiritual crises. The extreme social transformations of this century have caused hardly any stir. They have proceeded with a minimum of friction, with a minimum of upheavals, and, indeed, with a minimum of attention from scholars, politicians, the press, and the public. To be sure, this century of ours may well have been the cruelest and most violent in history, with its world and civil wars, its mass tortures, ethnic cleansings, genocides, and holocausts. But all these killings, all these horrors inflicted on the human race by this century's murderous "charismatics," hindsight clearly shows, were just that: senseless killings, senseless horrors, "sound and fury, signifying nothing." Hitler, Stalin, and Mao, the three evil geniuses of this century, destroyed. They created nothing.

Indeed, if this century proves one thing, it is the futility of politics. Even the most dogmatic believer in historical determinism would have a hard time explaining the social transformations of this century as caused by the headline-making political events, or the headline-making political events as caused by the social transformations. But it is the social transformations, like ocean currents deep below the hurricane-tormented surface of the sea, that have had the lasting, indeed the permanent, effect. They, rather than all the violence of the political surface, have transformed not only the society but also the economy, the community, and the polity we live in. The age of social transformation will not come to an end with the year 2000—it will not even have peaked by then.

The Social Structure Transformed

Before the First World War, farmers composed the largest single group in every country. They no longer made up the population everywhere, as they had from the dawn of history to the end of the Napoleonic Wars, a hundred years earlier. But farmers still made up a near-majority in every developed country except England and Belgium—in Germany, France, Japan, the United States—and, of course, in all underdeveloped countries, too. On the eve of the First World War it was considered a self-evident axiom that developed countries—the United States and Canada being the only exceptions—would increasingly have to rely on food imports from nonindustrial, nondeveloped areas.

Today only Japan among major developed free-market countries is a heavy importer of food. (It is one unnecessarily, for its weakness as a food producer is largely the result of an obsolete rice-subsidy policy that prevents the country from developing a modern, productive agriculture.) And in all developed free-market countries, including Japan, farmers today are at most five percent of the population and work force—that is, one tenth of the proportion of eighty years ago. Actually, productive farmers make up less than half of the total farm population, or no more than two percent of the work force. And these agricultural producers are not "farmers" in most senses of the word; they are "agribusiness," which is arguably the most capital-intensive, most technology-intensive, and most information-intensive industry around. Traditional farmers are close to extinction even in Japan. And those that remain have become a protected species kept alive only by enormous subsidies.

The second-largest group in the population and work force of every developed country around 1900 was composed of live-in servants. They were considered as much a law of nature as farmers were. Census categories of the time defined a "lower middle class" household as one that employed fewer than three servants, and as a percentage of the work force domestics grew steadily up to the First World War. Eighty years later live-in domestic servants scarcely exist in developed countries. Few people born since the Second World War—that is, few people under fifty—have even seen any except on the stage or in old movies.

In the developed society of 2000 farmers are little but objects of nostalgia, and domestic servants are not even that.

Yet these enormous transformations in all developed free-market countries were accomplished without civil war and, in fact, in almost total silence. Only now that their farm population has shrunk to near zero do the totally urban French loudly assert that theirs should be a "rural country" with a "rural civilization."

The Rise and Fall of the Blue-Collar Worker

One reason why the transformations caused so little stir (indeed, the main reason) was that by 1900 a new class, the blue-collar worker in manufacturing industry—Marx's "proletarian"—had become socially dominant. Farmers were loudly adjured to "raise less corn and more hell," but they paid little attention. Domestic servants were clearly the most exploited class around. But when people before the First World War talked or wrote about the "social question," they meant blue-collar industrial workers. Blue-collar industrial workers were still a fairly small minority of the population and work force—right up to 1914 they made up an eighth or a sixth of the total at most—and were still vastly outnumbered by the traditional lower classes of farmers and domestic servants. But early twentieth-century society was obsessed with blue-collar workers, fixated on them, bewitched by them.

Farmers and domestic servants were everywhere. But as classes, they were invisible. Domestic servants lived and worked inside individual homes or on individual farms in small and isolated groups of two or three. Farmers, too, were dispersed. More important, these traditional lower classes were not organized. Indeed, they could not be organized. Slaves employed in mining or in producing goods had revolted frequently in the ancient world—though always unsuccessfully. But there is no mention in any book I ever read of a single demonstration or a single protest march by domestic servants in any place, at any time. There have been peasant revolts galore. But except for two Chinese revolts in the nineteenth century—the Taiping Rebellion, in midcentury, and the Boxer Rebellion, at the century's end, both of which lasted for years and came close to overturning the regime—all peasant rebellions in history have fizzled out after a few bloody weeks. Peasants, history shows, are very hard to organize and do not stay organized—which is why they earned Marx's contempt.

The new class, industrial workers, was extremely visible. This is what made these workers a "class." They lived perforce in dense population clusters and in cities—in St. Denis, outside Paris; in Berlin's Wedding and Vienna's Ottakring; in the textile towns of Lancashire; in the steel towns of America's Monongahela Valley; and in Japan's Kobe. And they soon proved eminently organizable, with the first strikes occurring almost as soon as there were factory workers. Charles Dickens's harrowing tale of murderous labor conflict, Hard Times, was published in 1854, only six years after Marx and Engels wrote The Communist Manifesto.

By 1900 it had become quite clear that industrial workers would not become the majority, as Marx had predicted only a few decades earlier. They therefore would not overwhelm the capitalists by their sheer numbers. Yet the most influential radical writer of the period before the First World War, the French ex-Marxist and revolutionary syndicalist Georges Sorel, found widespread acceptance for his 1906 thesis that the proletarians would overturn the existing order and take power by their organization and in and through the violence of the general strike. It was not only Lenin who made Sorel's thesis the foundation of his revision of Marxism and built around it his strategy in 1917 and 1918. Both Mussolini and Hitler—and Mao, ten years later—built their strategies on Sorel's thesis. Mao's "power grows out of the barrel of a gun" is almost a direct quote from Sorel. The industrial worker became the "social question" of 1900 because he was the first lower class in history that could be organized and could stay organized.

No class in history has ever risen faster than the blue-collar worker. And no class in history has ever fallen faster.

In 1883, the year of Marx's death, "proletarians" were still a minority not just of the population but also of industrial workers. The majority in industry were then skilled workers employed in small craft shops, each containing twenty or thirty workers at most. Of the anti-heroes of the nineteenth century's best "proletarian" novel, The Princess Casamassima, by Henry James—published in 1886 (and surely only Henry James could have given such a title to a story of working-class terrorists!)—one is a highly skilled bookbinder, the other an equally skilled pharmacist. By 1900 "industrial worker" had become synonymous with "machine operator" and implied employment in a factory along with hundreds if not thousands of people. These factory workers were indeed Marx's proletarians—without social position, without political power, without economic or purchasing power.

The workers of 1900—and even of 1913—received no pensions, no paid vacation, no overtime pay, no extra pay for Sunday or night work, no health or old-age insurance (except in Germany), no unemployment compensation (except, after 1911, in Britain); they had no job security whatever. Fifty years later, in the 1950s, industrial workers had become the largest single group in every developed country, and unionized industrial workers in mass-production industry (which was then dominant everywhere) had attained upper-middle-class income levels. They had extensive job security, pensions, long paid vacations, and comprehensive unemployment insurance or "lifetime employment." Above all, they had achieved political power. In Britain the labor unions were considered to be the "real government," with greater power than the Prime Minister and Parliament, and much the same was true elsewhere. In the United States, too—as in Germany, France, and Italy—the labor unions had emerged as the country's most powerful and best organized political force. And in Japan they had come close, in the Toyota and Nissan strikes of the late forties and early fifties, to overturning the system and taking power themselves.

Thirty-five years later, in 1990, industrial workers and their unions were in retreat. They had become marginal in numbers. Whereas industrial workers who make or move things had accounted for two fifths of the American work force in the 1950s, they accounted for less than one fifth in the early 1990s—that is, for no more than they had accounted for in 1900, when their meteoric rise began. In the other developed free-market countries the decline was slower at first, but after 1980 it began to accelerate everywhere. By the year 2000 or 2010, in every developed free market country, industrial workers will account for no more than an eighth of the work force. Union power has been declining just as fast.

Unlike domestic servants, industrial workers will not disappear—any more than agricultural producers have disappeared or will disappear. But just as the traditional small farmer has become a recipient of subsidies rather than a producer, so will the traditional industrial worker become an auxiliary employee. His place is already being taken by the "technologist"—someone who works both with hands and with theoretical knowledge. (Examples are computer technicians, x-ray technicians, physical therapists, medical-lab technicians, pulmonary technicians, and so on, who together have made up the fastest-growing group in the U.S. labor force since 1980.) And instead of a class—a coherent, recognizable, defined, and self-conscious group—industrial workers may soon be just another "pressure group."

Chroniclers of the rise of the industrial worker tend to highlight the violent episodes—especially the clashes between strikers and the police, as in America's Pullman strike. The reason is probably that the theoreticians and propagandists of socialism, anarchism, and communism—beginning with Marx and continuing to Herbert Marcuse in the 1960s—incessantly wrote and talked of "revolution" and "violence." Actually, the rise of the industrial worker was remarkably nonviolent. The enormous violence of this century—the world wars, ethnic cleansings, and so on—was all violence from above rather than violence from below; and it was unconnected with the transformations of society, whether the dwindling of farmers, the disappearance of domestic servants, or the rise of the industrial worker. In fact, no one even tries anymore to explain these great convulsions as part of "the crisis of capitalism," as was standard Marxist rhetoric only thirty years ago.

Contrary to Marxist and syndicalist predictions, the rise of the industrial worker did not destabilize society. Instead it has emerged as the century's most stabilizing social development. It explains why the disappearance of the farmer and the domestic servant produced no social crises. Both the flight from the land and the flight from domestic service were voluntary. Farmers and maids were not "pushed off" or "displaced." They went into industrial employment as fast as they could. Industrial jobs required no skills they did not already possess, and no additional knowledge. In fact, farmers on the whole had a good deal more skill than was required to be a machine operator in a mass-production plant—and so did many domestic servants. To be sure, industrial work paid poorly until the First World War. But it paid better than farming or household work. Industrial workers in the United States until 1913—and in some countries, including Japan, until the Second World War—worked long hours. But they worked shorter hours than farmers and domestic servants. What's more, they worked specified hours: the rest of the day was their own, which was true neither of work on the farm nor of domestic work.

The history books record the squalor of early industry, the poverty of the industrial workers, and their exploitation. Workers did indeed live in squalor and poverty, and they were exploited. But they lived better than those on a farm or in a household, and were generally treated better.

Proof of this is that infant mortality dropped immediately when farmers and domestic servants moved into industrial work. Historically, cities had never reproduced themselves. They had depended for their perpetuation on constant new recruits from the countryside. This was still true in the mid-nineteenth century. But with the spread of factory employment the city became the center of population growth. In part this was a result of new public-health measures: purification of water, collection and treatment of wastes, quarantine against epidemics, inoculation against disease. These measures—and they were effective mostly in the city—counteracted, or at least contained, the hazards of crowding that had made the traditional city a breeding ground for pestilence. But the largest single factor in the exponential drop in infant mortality as industrialization spread was surely the improvement in living conditions brought about by the factory. Housing and nutrition became better, and hard work and accidents came to take less of a toll. The drop in infant mortality—and with it the explosive growth in population—correlates with only one development: industrialization. The early factory was indeed the "Satanic Mill" of William Blake's great poem. But the countryside was not "England's green and pleasant Land" of which Blake sang; it was a picturesque but even more satanic slum.

For farmers and domestic servants, industrial work was an opportunity. It was, in fact, the first opportunity that social history had given them to better themselves substantially without having to emigrate. In the developed free-market countries over the past 100 or 150 years every generation has been able to expect to do substantially better than the generation preceding it. The main reason has been that farmers and domestic servants could and did become industrial workers.

Because industrial workers are concentrated in groups, systematic work on their productivity was possible. Beginning in 1881, two years before Marx's death, the systematic study of work, tasks, and tools raised the productivity of manual work in making and moving things by three to four percent compound on average per year—for a fiftyfold increase in output per worker over 110 years. On this rest all the economic and social gains of the past century. And contrary to what "everybody knew" in the nineteenth century—not only Marx but all the conservatives as well, such as J. P. Morgan, Bismarck, and Disraeli—practically all these gains have accrued to the industrial worker, half of them in the form of sharply reduced working hours (with the cuts ranging from 40 percent in Japan to 50 percent in Germany), and half of them in the form of a twenty-five fold increase in the real wages of industrial workers who make or move things.

There were thus very good reasons why the rise of the industrial worker was peaceful rather than violent, let alone revolutionary. But what explains the fact that the fall of the industrial worker has been equally peaceful and almost entirely free of social protest, of upheaval, of serious dislocation, at least in the United States?

The Rise of the Knowledge Worker

The rise of the class succeeding industrial workers is not an opportunity for industrial workers. It is a challenge. The newly emerging dominant group is "knowledge workers." The very term was unknown forty years ago. (I coined it in a 1959 book, Landmarks of Tomorrow.) By the end of this century knowledge workers will make up a third or more of the work force in the United States—as large a proportion as manufacturing workers ever made up, except in wartime. The majority of them will be paid at least as well as, or better than, manufacturing workers ever were. And the new jobs offer much greater opportunities.

But—and this is a big but—the great majority of the new jobs require qualifications the industrial worker does not possess and is poorly equipped to acquire. They require a good deal of formal education and the ability to acquire and to apply theoretical and analytical knowledge. They require a different approach to work and a different mind-set. Above all, they require a habit of continuous learning. Displaced industrial workers thus cannot simply move into knowledge work or services the way displaced farmers and domestic workers moved into industrial work. At the very least they have to change their basic attitudes, values, and beliefs.

In the closing decades of this century the industrial work force has shrunk faster and further in the United States than in any other developed country—while industrial production has grown faster than in any other developed country except Japan.

The shift has aggravated America's oldest and least tractable problem: the position of blacks. In the fifty years since the Second World War the economic position of African-Americans in America has improved faster than that of any other group in American social history—or in the social history of any country. Three fifths of America's blacks rose into middle class incomes; before the Second World War the figure was one twentieth. But half that group rose into middle-class incomes and not into middle class jobs. Since the Second World War more and more blacks have moved into blue-collar unionized mass-production industry—that is, into jobs paying middle-class and upper-middle-class wages while requiring neither education nor skill. These are precisely the jobs, however, that are disappearing the fastest. What is amazing is not that so many blacks did not acquire an education but that so many did. The economically rational thing for a young black in postwar America was not to stay in school and learn; it was to leave school as early as possible and get one of the plentiful mass-production jobs. As a result, the fall of the industrial worker has hit America's blacks disproportionately hard—quantitatively, but qualitatively even more. It has blunted what was the most potent role model in the black community in America: the well-paid industrial worker with job security, health insurance, and a guaranteed retirement pension—yet possessing neither skill nor much education.

But, of course, blacks are a minority of the population and work force in the United States. For the overwhelming majority—whites, but also Latinos and Asians—the fall of the industrial worker has caused amazingly little disruption and nothing that could be called an upheaval. Even in communities that were once totally dependent on mass-production plants that have gone out of business or have drastically slashed employment (steel cities in western Pennsylvania and eastern Ohio, for instance, or automobile cities like Detroit and Flint, Michigan), unemployment rates for nonblack adults fell within a few short years to levels barely higher than the U.S. average—and that means to levels barely higher than the U.S. "full-employment" rate. Even in these communities there has been no radicalization of America's blue-collar workers.

The only explanation is that for the nonblack blue-collar community the development came as no surprise, however unwelcome, painful, and threatening it may have been to individual workers and their families. Psychologically—but in terms of values, perhaps, rather than in terms of emotions—America's industrial workers must have been prepared to accept as right and proper the shift to jobs that require formal education and that pay for knowledge rather than for manual work, whether skilled or unskilled.

In the United States the shift had by 1990 or so largely been accomplished. But so far it has occurred only in the United States. In the other developed free-market countries, in western and northern Europe and in Japan, it is just beginning in the 1990s. It is, however, certain to proceed rapidly in these countries from now on, perhaps faster than it originally did in the United States. The fall of the industrial worker in the developed free-market countries will also have a major impact outside the developed world. Developing countries can no longer expect to base their development on their comparative labor advantage—that is, on cheap industrial labor.

It is widely believed, especially by labor-union officials, that the fall of the blue-collar industrial worker in the developed countries was largely, if not entirely, caused by moving production "offshore" to countries with abundant supplies of unskilled labor and low wage rates. But this is not true.

There was something to the belief thirty years ago. Japan, Taiwan, and, later, South Korea did indeed (as explained in some detail in my 1993 book Post-Capitalist Society) gain their initial advantage in the world market by combining, almost overnight, America's invention of training for full productivity with wage costs that were still those of a pre-industrial country. But this technique has not worked at all since 1970 or 1975.

In the 1990s only an insignificant percentage of manufactured goods imported into the United States are produced abroad because of low labor costs. While total imports in 1990 accounted for about 12 percent of the U.S. gross personal income, imports from countries with significantly lower wage costs accounted for less than three percent—and only half of those were imports of manufactured products. Practically none of the decline in American manufacturing employment from some 30 or 35 percent of the work force to 15 or 18 percent can therefore be attributed to moving work to low-wage countries. The main competition for American manufacturing industry—for instance, in automobiles, in steel, and in machine tools—has come from countries such as Japan and Germany, where wage costs have long been equal to, if not higher than, those in the United States. The comparative advantage that now counts is in the application of knowledge—for example, in Japan's total quality management, lean manufacturing processes, just-in-time delivery, and price-based costing, or in the customer service offered by medium-sized German or Swiss engineering companies. This means, however, that developing countries can no longer expect to base their development on low wages. They, too, must learn to base it on applying knowledge—just at the time when most of them (China, India, and much of Latin America, let alone black Africa) will have to find jobs for millions of uneducated and unskilled young people who are qualified for little except yesterday's blue-collar industrial jobs.

But for the developed countries, too, the shift to knowledge-based work poses enormous social challenges. Despite the factory, industrial society was still essentially a traditional society in its basic social relationships of production. But the emerging society, the one based on knowledge and knowledge workers, is not. It is the first society in which ordinary people—and that means most people—do not earn their daily bread by the sweat of their brow. It is the first society in which "honest work" does not mean a callused hand. It is also the first society in which not everybody does the same work, as was the case when the huge majority were farmers or, as seemed likely only forty or thirty years ago, were going to be machine operators.

This is far more than a social change. It is a change in the human condition.

What it means—what are the values, the commitments, the problems, of the new society—we do not know.

But we do know that much will be different.

The Emerging Knowledge Society

Knowledge workers will not be the majority in the knowledge society, but in many if not most developed societies they will be the largest single population and work-force group. And even where outnumbered by other groups, knowledge workers will give the emerging knowledge society its character, its leadership, its social profile. They may not be the ruling class of the knowledge society, but they are already its leading class. And in their characteristics, social position, values, and expectations, they differ fundamentally from any group in history that has ever occupied the leading position.

In the first place, knowledge workers gain access to jobs and social position through formal education. A great deal of knowledge work requires highly developed manual skill and involves substantial work with one's hands. An extreme example is neurosurgery. The neurosurgeon's performance capacity rests on formal education and theoretical knowledge. An absence of manual skill disqualifies one for work as a neurosurgeon. But manual skill alone, no matter how advanced, will never enable anyone to be a neurosurgeon. The education that is required for neurosurgery and other kinds of knowledge work can be acquired only through formal schooling. It cannot be acquired through apprenticeship.

Knowledge work varies tremendously in the amount and kind of formal knowledge required. Some jobs have fairly low requirements, and others require the kind of knowledge the neurosurgeon possesses. But even if the knowledge itself is quite primitive, only formal education can provide it.

Education will become the center of the knowledge society, and the school its key institution. What knowledge must everybody have? What is "quality" in learning and teaching? These will of necessity become central concerns of the knowledge society, and central political issues. In fact, the acquisition and distribution of formal knowledge may come to occupy the place in the politics of the knowledge society which the acquisition and distribution of property and income have occupied in our politics over the two or three centuries that we have come to call the Age of Capitalism.

In the knowledge society, clearly, more and more knowledge, and especially advanced knowledge, will be acquired well past the age of formal schooling and increasingly, perhaps, through educational processes that do not center on the traditional school. But at the same time, the performance of the schools and the basic values of the schools will be of increasing concern to society as a whole, rather than being considered professional matters that can safely be left to "educators."

We can also predict with confidence that we will redefine what it means to be an educated person. Traditionally, and especially during the past 300 years (perhaps since 1700 or so, at least in the West, and since about that time in Japan as well), an educated person was somebody who had a prescribed stock of formal knowledge. The Germans called this knowledge allgemeine Bildung, and the English (and, following them, the nineteenth century Americans) called it the liberal arts. Increasingly, an educated person will be somebody who has learned how to learn, and who continues learning, especially by formal education, throughout his or her lifetime.

There are obvious dangers to this. For instance, society could easily degenerate into emphasizing formal degrees rather than performance capacity. It could fall prey to sterile Confucian mandarins—a danger to which the American university is singularly susceptible. On the other hand, it could overvalue immediately usable, "practical" knowledge and underrate the importance of fundamentals, and of wisdom altogether.

A society in which knowledge workers dominate is under threat from a new class conflict: between the large minority of knowledge workers and the majority of people, who will make their living traditionally, either by manual work, whether skilled or unskilled, or by work in services, whether skilled or unskilled. The productivity of knowledge work—still abysmally low—will become the economic challenge of the knowledge society. On it will depend the competitive position of every single country, every single industry, every single institution within society. The productivity of the nonknowledge, services worker will become the social challenge of the knowledge society. On it will depend the ability of the knowledge society to give decent incomes, and with them dignity and status, to non-knowledge workers.

No society in history has faced these challenges. But equally new are the opportunities of the knowledge society. In the knowledge society, for the first time in history, the possibility of leadership will be open to all. Also, the possibility of acquiring knowledge will no longer depend on obtaining a prescribed education at a given age. Learning will become the tool of the individual—available to him or her at any age—if only because so much skill and knowledge can be acquired by means of the new learning technologies.

Another implication is that how well an individual, an organization, an industry, a country, does in acquiring and applying knowledge will become the key competitive factor. The knowledge society will inevitably become far more competitive than any society we have yet known—for the simple reason that with knowledge being universally accessible, there will be no excuses for nonperformance. There will be no "poor" countries. There will only be ignorant countries. And the same will be true for companies, industries, and organizations of all kinds. It will be true for individuals, too. In fact, developed societies have already become infinitely more competitive for individuals than were the societies of the beginning of this century, let alone earlier ones.

I have been speaking of knowledge. But a more accurate term is "knowledges," because the knowledge of the knowledge society will be fundamentally different from what was considered knowledge in earlier societies—and, in fact, from what is still widely considered knowledge. The knowledge of the German allgemeine Bildung or of the Anglo-American liberal arts had little to do with one's life's work. It focused on the person and the person's development, rather than on any application—if, indeed, it did not, like the nineteenth-century liberal arts, pride itself on having no utility whatever. In the knowledge society knowledge for the most part exists only in application. Nothing the x-ray technician needs to know can be applied to market research, for instance, or to teaching medieval history. The central work force in the knowledge society will therefore consist of highly specialized people. In fact, it is a mistake to speak of "generalists." What we will increasingly mean by that term is people who have learned how to acquire additional specialties rapidly in order to move from one kind of job to another—for example, from market research into management, or from nursing into hospital administration. But "generalists" in the sense in which we used to talk of them are coming to be seen as dilettantes rather than educated people.

This, too, is new. Historically, workers were generalists. They did whatever had to be done—on the farm, in the household, in the craftsman's shop. This was also true of industrial workers. But knowledge workers, whether their knowledge is primitive or advanced, whether there is a little of it or a great deal, will by definition be specialized. Applied knowledge is effective only when it is specialized. Indeed, the more highly specialized, the more effective it is. This goes for technicians who service computers, x-ray machines, or the engines of fighter planes. But it applies equally to work that requires the most advanced knowledge, whether research in genetics or research in astrophysics or putting on the first performance of a new opera.

Again, the shift from knowledge to knowledges offers tremendous opportunities to the individual. It makes possible a career as a knowledge worker. But it also presents a great many new problems and challenges. It demands for the first time in history that people with knowledge take responsibility for making themselves understood by people who do not have the same knowledge base.

How Knowledges Work

That knowledge in the knowledge society has to be highly specialized to be productive implies two new requirements: that knowledge workers work in teams, and that if knowledge workers are not employees, they must at least be affiliated with an organization.

There is a great deal of talk these days about "teams" and "teamwork." Most of it starts out with the wrong assumption—namely, that we have never before worked in teams. Actually people have always worked in teams; very few people ever could work effectively by themselves. The farmer had to have a wife, and the farm wife had to have a husband. The two worked as a team. And both worked as a team with their employees, the hired hands. The craftsman also had to have a wife, with whom he worked as a team—he took care of the craft work, and she took care of the customers, the apprentices, and the business altogether. And both worked as a team with journeymen and apprentices. Much discussion today assumes that there is only one kind of team. Actually there are quite a few. But until now the emphasis has been on the individual worker and not on the team. With knowledge work growing increasingly effective as it is increasingly specialized, teams become the work unit rather than the individual himself.

The team that is being touted now—I call it the "jazz combo" team—is only one kind of team. It is actually the most difficult kind of team both to assemble and to make work effectively, and the kind that requires the longest time to gain performance capacity. We will have to learn to use different kinds of teams for different purposes. We will have to learn to understand teams—and this is something to which, so far, very little attention has been paid. The understanding of teams, the performance capacities of different kinds of teams, their strengths and limitations, and the trade-offs between various kinds of teams will thus become central concerns in the management of people.

Equally important is the second implication of the fact that knowledge workers are of necessity specialists: the need for them to work as members of an organization. Only the organization can provide the basic continuity that knowledge workers need in order to be effective. Only the organization can convert the specialized knowledge of the knowledge worker into performance.

By itself, specialized knowledge does not yield performance. The surgeon is not effective unless there is a diagnosis—which, by and large, is not the surgeon's task and not even within the surgeon's competence. As a loner in his or her research and writing, the historian can be very effective. But to educate students, a great many other specialists have to contribute—people whose specialty may be literature, or mathematics, or other areas of history. And this requires that the specialist have access to an organization.

This access may be as a consultant, or it may be as a provider of specialized services. But for the majority of knowledge workers it will be as employees, full-time or part-time, of an organization, such as a government agency, a hospital, a university, a business, or a labor union. In the knowledge society it is not the individual who performs. The individual is a cost center rather than a performance center. It is the organization that performs.

What is an Employee?

Most knowledge workers will spend most if not all of their working lives as "employees." But the meaning of the term will be different from what it has been traditionally—and not only in English but in German, Spanish, and Japanese as well.

Individually, knowledge workers are dependent on the job. They receive a wage or salary. They have been hired and can be fired. Legally each is an employee. But collectively they are the capitalists; increasingly, through their pension funds and other savings, the employees own the means of production. In traditional economics—and by no means only in Marxist economics—there is a sharp distinction between the "wage fund," all of which goes into consumption, and the "capital fund," or that part of the total income stream that is available for investment. And most social theory of industrial society is based, one way or another, on the relationship between the two, whether in conflict or in necessary and beneficial cooperation and balance. In the knowledge society the two merge. The pension fund is "deferred wages," and as such is a wage fund. But it is also increasingly the main source of capital for the knowledge society.

Perhaps more important, in the knowledge society the employees—that is, knowledge workers—own the tools of production. Marx's great insight was that the factory worker does not and cannot own the tools of production, and therefore is "alienated." There was no way, Marx pointed out, for the worker to own the steam engine and to be able to take it with him when moving from one job to another. The capitalist had to own the steam engine and to control it. Increasingly, the true investment in the knowledge society is not in machines and tools but in the knowledge of the knowledge worker. Without that knowledge the machines, no matter how advanced and sophisticated, are unproductive.

The market researcher needs a computer. But increasingly this is the researcher's own personal computer, and it goes along wherever he or she goes. The true "capital equipment" of market research is the knowledge of markets, of statistics, and of the application of market research to business strategy, which is lodged between the researcher's ears and is his or her exclusive and inalienable property. The surgeon needs the operating room of the hospital and all its expensive capital equipment. But the surgeon's true capital investment is twelve or fifteen years of training and the resulting knowledge, which the surgeon takes from one hospital to the next. Without that knowledge the hospital's expensive operating rooms are so much waste and scrap.

This is true whether the knowledge worker commands advanced knowledge, like a surgeon, or simple and fairly elementary knowledge, like a junior accountant. In either case it is the knowledge investment that determines whether the employee is productive or not, more than the tools, machines, and capital furnished by an organization. The industrial worker needed the capitalist infinitely more than the capitalist needed the industrial worker—the basis for Marx's assertion that there would always be a surplus of industrial workers, an "industrial reserve army," that would make sure that wages could not possibly rise above the subsistence level (probably Marx's most egregious error). In the knowledge society the most probable assumption for organizations—and certainly the assumption on which they have to conduct their affairs—is that they need knowledge workers far more than knowledge workers need them.

There was endless debate in the Middle Ages about the hierarchy of knowledges, with philosophy claiming to be the "queen." We long ago gave up that fruitless argument. There is no higher or lower knowledge. When the patient's complaint is an ingrown toenail, the podiatrist's knowledge, not that of the brain surgeon, controls—even though the brain surgeon has received many more years of training and commands a much larger fee. And if an executive is posted to a foreign country, the knowledge he or she needs, and in a hurry, is fluency in a foreign language—something every native of that country has mastered by age three, without any great investment. The knowledge of the knowledge society, precisely because it is knowledge only when applied in action, derives its rank and standing from the situation. In other words, what is knowledge in one situation, such as fluency in Korean for the American executive posted to Seoul, is only information, and not very relevant information at that, when the same executive a few years later has to think through his company's market strategy for Korea. This, too, is new. Knowledges were always seen as fixed stars, so to speak, each occupying its own position in the universe of knowledge. In the knowledge society knowledges are tools, and as such are dependent for their importance and position on the task to be performed.

Management in the Knowledge Society

One additional conclusion: Because the knowledge society perforce has to be a society of organizations, its central and distinctive organ is management.

When our society began to talk of management, the term meant "business management"—because large-scale business was the first of the new organizations to become visible. But we have learned in this past half century that management is the distinctive organ of all organizations. All of them require management, whether they use the term or not. All managers do the same things, whatever the purpose of their organization. All of them have to bring people—each possessing different knowledge- together for joint performance. All of them have to make human strengths productive in performance and human weaknesses irrelevant. All of them have to think through what results are wanted in the organization—and have then to define objectives. All of them are responsible for thinking through what I call the theory of the business—that is, the assumptions on which the organization bases its performance and actions, and the assumptions that the organization has made in deciding what not to do. All of them must think through strategies—that is, the means through which the goals of the organization become performance. All of them have to define the values of the organization, its system of rewards and punishments, its spirit and its culture. In all organizations managers need both the knowledge of management as work and discipline and the knowledge and understanding of the organization itself—its purposes, its values, its environment and markets, its core competencies.

Management as a practice is very old. The most successful executive in all history was surely that Egyptian who, 4,500 years or more ago, first conceived the pyramid, without any precedent, designed it, and built it, and did so in an astonishingly short time. That first pyramid still stands. But as a discipline management is barely fifty years old. It was first dimly perceived around the time of the First World War. It did not emerge until the Second World War, and then did so primarily in the United States. Since then it has been the fastest-growing new function, and the study of it the fastest-growing new discipline. No function in history has emerged as quickly as has management in the past fifty or sixty years, and surely none has had such worldwide sweep in such a short period.

Management is still taught in most business schools as a bundle of techniques, such as budgeting and personnel relations. To be sure, management, like any other work, has its own tools and its own techniques. But just as the essence of medicine is not urinalysis (important though that is), the essence of management is not techniques and procedures. The essence of management is to make knowledges productive. Management, in other words, is a social function. And in its practice management is truly a liberal art.

The Social Sector

The old communities—family, village, parish, and so on—have all but disappeared in the knowledge society. Their place has largely been taken by the new unit of social integration, the organization. Where community was fate, organization is voluntary membership. Where community claimed the entire person, organization is a means to a person's ends, a tool. For 200 years a hot debate has been raging, especially in the West: are communities "organic" or are they simply extensions of the people of which they are made? Nobody would claim that the new organization is "organic." It is clearly an artifact, a creation of man, a social technology.

But who, then, does the community tasks? Two hundred years ago whatever social tasks were being done were done in all societies by a local community. Very few if any of these tasks are being done by the old communities anymore. Nor would they be capable of doing them, considering that they no longer have control of their members or even a firm hold over them. People no longer stay where they were born, either in terms of geography or in terms of social position and status. By definition, a knowledge society is a society of mobility. And all the social functions of the old communities, whether performed well or poorly (and most were performed very poorly indeed), presupposed that the individual and the family would stay put. But the essence of a knowledge society is mobility in terms of where one lives, mobility in terms of what one does, mobility in terms of one's affiliations. People no longer have roots. People no longer have a neighborhood that controls what their home is like, what they do, and, indeed, what their problems are allowed to be. The knowledge society is a society in which many more people than ever before can be successful. But it is therefore, by definition, also a society in which many more people than ever before can fail, or at least come in second. And if only because the application of knowledge to work has made developed societies so much richer than any earlier society could even dream of becoming, the failures, whether poor people or alcoholics, battered women or juvenile delinquents, are seen as failures of society.

Who, then, takes care of the social tasks in the knowledge society? We cannot ignore them. But the traditional community is incapable of tackling them.

Two answers have emerged in the past century or so—a majority answer and a dissenting opinion. Both have proved to be wrong.

The majority answer goes back more than a hundred years, to the 1880s, when Bismarck's Germany took the first faltering steps toward the welfare state. The answer: the problems of the social sector can, should, and must be solved by government. This is still probably the answer that most people accept, especially in the developed countries of the West—even though most people probably no longer fully believe it. But it has been totally disproved. Modern government, especially since the Second World War, has everywhere become a huge welfare bureaucracy. And the bulk of the budget in every developed country today is devoted to Entitlements—to payments for all kinds of social services. Yet in every developed country society is becoming sicker rather than healthier, and social problems are multiplying. Government has a big role to play in social tasks—the role of policymaker, of standard setter, and, to a substantial extent, of paymaster. But as the agency to run social services, it has proved almost totally incompetent.

In my The Future of Industrial Man (1942), I formulated a dissenting opinion. I argued then that the new organization—and fifty years ago that meant the large business enterprise—would have to be the community in which the individual would find status and function, with the workplace community becoming the one in and through which social tasks would be organized. In Japan (though quite independently and without any debt to me) the large employer—government agency or business—has indeed increasingly attempted to serve as a community for its employees. Lifetime employment is only one affirmation of this. Company housing, company health plans, company vacations, and so on all emphasize for the Japanese employee that the employer, and especially the big corporation, is the community and the successor to yesterday's village—even to yesterday's family. This, however, has not worked either.

There is need, especially in the West, to bring the employee increasingly into the government of the workplace community. What is now called empowerment is very similar to the things I talked about fifty years ago. But it does not create a community. Nor does it create the structure through which the social tasks of the knowledge society can be tackled. In fact, practically all these tasks—whether education or health care; the anomies and diseases of a developed and, especially, a rich society, such as alcohol and drug abuse; or the problems of incompetence and irresponsibility such as those of the underclass in the American city—lie outside the employing institution.

The right answer to the question Who takes care of the social challenges of the knowledge society? is neither the government nor the employing organization. The answer is a separate and new social sector.

It is less than fifty years, I believe, since we first talked in the United States of the two sectors of a modern society—the "public sector" (government) and the "private sector" (business). In the past twenty years the United States has begun to talk of a third sector, the "nonprofit sector"—those organizations that increasingly take care of the social challenges of a modern society.

In the United States, with its tradition of independent and competitive churches, such a sector has always existed. Even now churches are the largest single part of the social sector in the United States, receiving almost half the money given to charitable institutions, and about a third of the time volunteered by individuals. But the nonchurch part of the social sector has been the growth sector in the United States. In the early 1990s about a million organizations were registered in the United States as nonprofit or charitable organizations doing social-sector work. The overwhelming majority of these, some 70 percent, have come into existence in the past thirty years. And most are community services concerned with life on this earth rather than with the Kingdom of Heaven. Quite a few of the new organizations are, of course, religious in their orientation, but for the most part these are not churches. They are "parachurches" engaged in a specific social task, such as the rehabilitation of alcohol and drug addicts, the rehabilitation of criminals, or elementary school education. Even within the church segment of the social sector the organizations that have shown the capacity to grow are radically new. They are the "pastoral" churches, which focus on the spiritual needs of individuals, especially educated knowledge workers, and then put the spiritual energies of their members to work on the social challenges and social problems of the community—especially, of course, the urban community.

We still talk of these organizations as "nonprofits." But this is a legal term. It means nothing except that under American law these organizations do not pay taxes. Whether they are organized as nonprofit or not is actually irrelevant to their function and behavior. Many American hospitals since 1960 or 1970 have become "for-profits" and are organized in what legally are business corporations. They function in exactly the same way as traditional "nonprofit" hospitals. What matters is not the legal basis but that the social-sector institutions have a particular kind of purpose. Government demands compliance; it makes rules and enforces them. Business expects to be paid; it supplies. Social-sector institutions aim at changing the human being. The "product" of a school is the student who has learned something. The "product" of a hospital is a cured patient. The "product" of a church is a churchgoer whose life is being changed. The task of social-sector organizations is to create human health and well being.

Increasingly these organizations of the social sector serve a second and equally important purpose. They create citizenship. Modern society and modern polity have become so big and complex that citizenship—that is, responsible participation—is no longer possible. All we can do as citizens is to vote once every few years and to pay taxes all the time.

As a volunteer in a social-sector institution, the individual can again make a difference. In the United States, where there is a long volunteer tradition because of the old independence of the churches, almost every other adult in the 1990s is working at least three—and often five—hours a week as a volunteer in a social-sector organization. Britain is the only other country with something like this tradition, although it exists there to a much lesser extent (in part because the British welfare state is far more embracing, but in much larger part because it has an established church—paid for by the state and run as a civil service). Outside the English-speaking countries there is not much of a volunteer tradition. In fact, the modern state in Europe and Japan has been openly hostile to anything that smacks of volunteerism—most so in France and Japan. It is ancien regime and suspected of being fundamentally subversive.

But even in these countries things are changing, because the knowledge society needs the social sector, and the social sector needs the volunteer. But knowledge workers also need a sphere in which they can act as citizens and create a community. The workplace does not give it to them. Nothing has been disproved faster than the concept of the "organization man," which was widely accepted forty years ago. In fact, the more satisfying one's knowledge work is, the more one needs a separate sphere of community activity.

Many social-sector organizations will become partners with government—as is the case in a great many "privatizations," where, for instance, a city pays for street cleaning and an outside contractor does the work. In American education over the next twenty years there will be more and more government-paid vouchers that will enable parents to put their children into a variety of different schools, some public and tax supported, some private and largely dependent on the income from the vouchers. These social-sector organizations, although partners with government, also clearly compete with government. The relationship between the two has yet to be worked out—and there is practically no precedent for it.

What constitutes performance for social-sector organizations, and especially for those that, being nonprofit and charitable, do not have the discipline of a financial bottom line, has also yet to be worked out. We know that social-sector organizations need management. But what precisely management means for the social-sector organization is just beginning to be studied. With respect to the management of the nonprofit organization we are in many ways pretty much where we were fifty or sixty years ago with respect to the management of the business enterprise: the work is only beginning.

But one thing is already clear. The knowledge society has to be a society of three sectors: a public sector of government, a private sector of business, and a social sector. And I submit that it is becoming increasingly clear that through the social sector a modern developed society can again create responsible and achieving citizenship, and can again give individuals—especially knowledge workers—a sphere in which they can make a difference in society and re-create community.

The School as Society's Center

Knowledge has become the key resource, for a nation's military strength as well as for its economic strength. And this knowledge can be acquired only through schooling. It is not tied to any country. It is portable. It can be created everywhere, fast and cheaply. Finally, it is by definition changing. Knowledge as the key resource is fundamentally different from the traditional key resources of the economist—land, labor, and even capital.

That knowledge has become the key resource means that there is a world economy, and that the world economy, rather than the national economy, is in control. Every country, every industry, and every business will be in an increasingly competitive environment. Every country, every industry, and every business will, in its decisions, have to consider its competitive standing in the world economy and the competitiveness of its knowledge competencies.

Politics and policies still center on domestic issues in every country. Few if any politicians, journalists, or civil servants look beyond the boundaries of their own country when a new measure such as taxes, the regulation of business, or social spending is being discussed. Even in Germany—Europe's most export-conscious and export-dependent major country—this is true. Almost no one in the West asked in 1990 what the government's unbridled spending in the East would do to Germany's competitiveness.

This will no longer do. Every country and every industry will have to learn that the first question is not Is this measure desirable? but What will be the impact on the country's, or the industry's, competitive position in the world economy? We need to develop in politics something similar to the environmental-impact statement, which in the United States is now required for any government action affecting the quality of the environment: we need a competitive-impact statement. The impact on one's competitive position in the world economy should not necessarily be the main factor in a decision. But to make a decision without considering it has become irresponsible.

Altogether, the fact that knowledge has become the key resource means that the standing of a country in the world economy will increasingly determine its domestic prosperity. Since 1950 a country's ability to improve its position in the world economy has been the main and perhaps the sole determinant of performance in the domestic economy. Monetary and fiscal policies have been practically irrelevant, for better and, very largely, even for worse (with the single exception of governmental policies creating inflation, which very rapidly undermines both a country's competitive standing in the world economy and its domestic stability and ability to grow).

The primacy of foreign affairs is an old political precept going back in European politics to the seventeenth century. Since the Second World War it has also been accepted in American politics—though only grudgingly so, and only in emergencies. It has always meant that military security was to be given priority over domestic policies, and in all likelihood this is what it will continue to mean, Cold War or no Cold War. But the primacy of foreign affairs is now acquiring a different dimension. This is that a country's competitive position in the world economy—and also an industry's and an organization's—has to be the first consideration in its domestic policies and strategies. This holds true for a country that is only marginally involved in the world economy (should there still be such a one), and for a business that is only marginally involved in the world economy, and for a university that sees itself as totally domestic. Knowledge knows no boundaries. There is no domestic knowledge and no international knowledge. There is only knowledge. And with knowledge becoming the key resource, there is only a world economy, even though the individual organization in its daily activities operates within a national, regional, or even local setting.

How Can Government Function?

Social tasks are increasingly being done by individual organizations, each created for one, and only one, social task, whether education, health care, or street cleaning. Society, therefore, is rapidly becoming pluralist. Yet our social and political theories still assume that there are no power centers except government. To destroy or at least to render impotent all other power centers was, in fact, the thrust of Western history and Western politics for 500 years, from the fourteenth century on. This drive culminated in the eighteenth and nineteenth centuries, when, except in the United States, such early institutions as still survived—for example, the universities and the churches—became organs of the state, with their functionaries becoming civil servants. But then, beginning in the mid nineteenth century, new centers arose—the first one, the modern business enterprise, around 1870. And since then one new organization after another has come into being.

The new institutions—the labor union, the modern hospital, the mega church, the research university—of the society of organizations have no interest in public power. They do not want to be governments. But they demand—and, indeed, need—autonomy with respect to their functions. Even at the extreme of Stalinism the managers of major industrial enterprises were largely masters within their enterprises, and the individual industry was largely autonomous. So were the university, the research lab, and the military.

In the "pluralism" of yesterday—in societies in which control was shared by various institutions, such as feudal Europe in the Middle Ages and Edo Japan in the seventeenth and eighteenth centuries—pluralist organizations tried to be in control of whatever went on in their community. At least, they tried to prevent any other organization from having control of any community concern or community institution within their domain. But in the society of organizations each of the new institutions is concerned only with its own purpose and mission. It does not claim power over anything else. But it also does not assume responsibility for anything else. Who, then, is concerned with the common good?

This has always been a central problem of pluralism. No earlier pluralism solved it. The problem remains, but in a new guise. So far it has been seen as imposing limits on social institutions—forbidding them to do things in the pursuit of their mission, function, and interest which encroach upon the public domain or violate public policy. The laws against discrimination—by race, sex, age, educational level, health status, and so on—which have proliferated in the United States in the past forty years all forbid socially undesirable behavior. But we are increasingly raising the question of the social responsibility of social institutions: What do institutions have to do—in addition to discharging their own functions—to advance the public good? This, however, though nobody seems to realize it, is a demand to return to the old pluralism, the pluralism of feudalism. It is a demand that private hands assume public power.

This could seriously threaten the functioning of the new organizations, as the example of the schools in the United States makes abundantly clear. One of the major reasons for the steady decline in the capacity of the schools to do their job—that is, to teach children elementary knowledge skills—is surely that since the 1950s the United States has increasingly made the schools the carriers of all kinds of social policies: the elimination of racial discrimination, of discrimination against all other kinds of minorities, including the handicapped, and so on. Whether we have actually made any progress in assuaging social ills is highly debatable; so far the schools have not proved particularly effective as tools for social reform. But making the school the organ of social policies has, without any doubt, severely impaired its capacity to do its own job.

The new pluralism has a new problem: how to maintain the performance capacity of the new institutions and yet maintain the cohesion of society. This makes doubly important the emergence of a b and functioning social sector. It is an additional reason why the social sector will increasingly be crucial to the performance, if not to the cohesion, of the knowledge society.

Of the new organizations under consideration here, the first to arise, 120 years ago, was the business enterprise. It was only natural, therefore, that the problem of the emerging society of organizations was first seen as the relationship of government and business. It was also natural that the new interests were first seen as economic interests.

The first attempt to come to grips with the politics of the emerging society of organizations aimed, therefore, at making economic interests serve the political process. The first to pursue this goal was an American, Mark Hanna, the restorer of the Republican Party in the 1890s and, in many ways, the founding father of twentieth-century American politics. His definition of politics as a dynamic disequilibrium between the major economic interests—farmers, business, and labor—remained the foundation of American politics until the Second World War. In fact, Franklin D. Roosevelt restored the Democratic Party by reformulating Hanna. And the basic political position of this philosophy is evident in the title of the most influential political book written during the New Deal years—Politics: Who Gets What, When, How (1936), by Harold D. Lasswell.

Mark Hanna in 1896 knew very well that there are plenty of concerns other than economic concerns. And yet it was obvious to him—as it was to Roosevelt forty years later—that economic interests had to be used to integrate all the others. This is still the assumption underlying most analyses of American politics—and, in fact, of politics in all developed countries. But the assumption is no longer tenable. Underlying Hanna's formula of economic interests is the view of land, labor, and capital as the existing resources. But knowledge, the new resource for economic performance, is not in itself economic.

It cannot be bought or sold. The fruits of knowledge, such as the income from a patent, can be bought or sold; the knowledge that went into the patent cannot be conveyed at any price. No matter how much a suffering person is willing to pay a neurosurgeon, the neurosurgeon cannot sell to him—and surely cannot convey to him—the knowledge that is the foundation of the neurosurgeon's performance and income. The acquisition of knowledge has a cost, as has the acquisition of anything. But the acquisition of knowledge has no price.

Economic interests can therefore no longer integrate all other concerns and interests. As soon as knowledge became the key economic resource, the integration of interests—and with it the integration of the pluralism of a modern polity—began to be lost. Increasingly, non-economic interests are becoming the new pluralism—the special interests, the single-cause organizations, and so on. Increasingly, politics is not about "who gets what, when, how" but about values, each of them considered to be an absolute. Politics is about the right to life of the embryo in the womb as against the right of a woman to control her own body and to abort an embryo. It is about the environment. It is about gaining equality for groups alleged to be oppressed and discriminated against. None of these issues is economic. All are fundamentally moral.

Economic interests can be compromised, which is the great strength of basing politics on economic interests. "Half a loaf is still bread" is a meaningful saying. But half a baby, in the biblical story of the judgment of Solomon, is not half a child. No compromise is possible. To an environmentalist, half an endangered species is an extinct species.

This greatly aggravates the crisis of modern government. Newspapers and commentators still tend to report in economic terms what goes on in Washington, in London, in Bonn, or in Tokyo. But more and more of the lobbyists who determine governmental laws and governmental actions are no longer lobbyists for economic interests. They lobby for and against measures that they—and their paymasters—see as moral, spiritual, cultural. And each of these new moral concerns, each represented by a new organization, claims to stand for an absolute. Dividing their loaf is not compromise; it is treason.

There is thus in the society of organizations no one integrating force that pulls individual organizations in society and community into coalition. The traditional parties—perhaps the most successful political creations of the nineteenth century—can no longer integrate divergent groups and divergent points of view into a common pursuit of power. Rather, they have become battlefields between groups, each of them fighting for absolute victory and not content with anything but total surrender of the enemy.

The Need for Social and Political Innovation

The twenty-first century will surely be one of continuing social, economic, and political turmoil and challenge, at least in its early decades. What I have called the age of social transformation is not over yet. And the challenges looming ahead may be more serious and more daunting than those posed by the social transformations that have already come about, the social transformations of the twentieth century.

Yet we will not even have a chance to resolve these new and looming problems of tomorrow unless we first address the challenges posed by the developments that are already accomplished facts, the developments reported in the earlier sections of this essay. These are the priority tasks. For only if they are tackled can we in the developed democratic free market countries hope to have the social cohesion, the economic strength, and the governmental capacity needed to tackle the new challenges. The first order of business—for sociologists, political scientists, and economists; for educators; for business executives, politicians, and nonprofit-group leaders; for people in all walks of life, as parents, as employees, as citizens—is to work on these priority tasks, for few of which we so far have a precedent, let alone tested solutions.

We will have to think through education—its purpose, its values, its content. We will have to learn to define the quality of education and the productivity of education, to measure both and to manage both.

We need systematic work on the quality of knowledge and the productivity of knowledge—neither even defined so far. The performance capacity, if not the survival, of any organization in the knowledge society will come increasingly to depend on those two factors. But so will the performance capacity, if not the survival, of any individual in the knowledge society. And what responsibility does knowledge have? What are the responsibilities of the knowledge worker, and especially of a person with highly specialized knowledge?

Increasingly, the policy of any country—and especially of any developed country—will have to give primacy to the country's competitive position in an increasingly competitive world economy. Any proposed domestic policy needs to be shaped so as to improve that position, or at least to minimize adverse impacts on it. The same holds true for the policies and strategies of any institution within a nation, whether a local government, a business, a university, or a hospital.

But then we also need to develop an economic theory appropriate to a world economy in which knowledge has become the key economic resource and the dominant, if not the only, source of comparative advantage.

We are beginning to understand the new integrating mechanism: organization. But we still have to think through how to balance two apparently contradictory requirements. Organizations must competently perform the one social function for the sake of which they exist—the school to teach, the hospital to cure the sick, and the business to produce goods, services, or the capital to provide for the risks of the future. They can do so only if they single-mindedly concentrate on their specialized mission. But there is also society's need for these organizations to take social responsibility—to work on the problems and challenges of the community. Together these organizations are the community. The emergence of a b, independent, capable social sector—neither public sector nor private sector—is thus a central need of the society of organizations. But by itself it is not enough—the organizations of both the public and the private sector must share in the work.

The function of government and its functioning must be central to political thought and political action.

The megastate in which this century indulged has not performed, either in its totalitarian or in its democratic version. It has not delivered on a single one of its promises. And government by countervailing lobbyists is neither particularly effective—in fact, it is paralysis—nor particularly attractive. Yet effective government has never been needed more than in this highly competitive and fast-changing world of ours, in which the dangers created by the pollution of the physical environment are matched only by the dangers of worldwide armaments pollution. And we do not have even the beginnings of political theory or the political institutions needed for effective government in the knowledge-based society of organizations.

If the twentieth century was one of social transformations,

the twenty first century needs to be one of social and political innovations,

What Money Can't Buy

:

The Moral Limits of Markets

Michael J. Sandel

Should we pay children to read books or to get good grades? Should we allow corporations to pay for the right to pollute the atmosphere? Is it ethical to pay people to test risky new drugs or to donate their organs? What about hiring mercenaries to fight our wars? Auctioning admission to elite universities? Selling citizenship to immigrants willing to pay?

In What Money Can’t Buy, Michael J. Sandel takes on one of the biggest ethical questions of our time: Is there something wrong with a world in which everything is for sale? If so, how can we prevent market values from reaching into spheres of life where they don’t belong? What are the moral limits of markets?

In recent decades, market values have crowded out nonmarket norms in almost every aspect of life—medicine, education, government, law, art, sports, even family life and personal relations. Without quite realizing it, Sandel argues, we have drifted from having a market economy to being a market society. Is this where we want to be?

In his New York Times bestseller Justice, Sandel showed himself to be a master at illuminating, with clarity and verve, the hard moral questions we confront in our everyday lives. Now, in What Money Can’t Buy, he provokes an essential discussion that we, in our market-driven age, need to have: What is the proper role of markets in a democratic society—and how can we protect the moral and civic goods that markets don’t honor and that money can’t buy?

Biography

Michael Sandel is the Anne T. and Robert M. Bass Professor of Government at the University of Harvard. Sandel's legendary 'Justice' course is one of the most popular and influential at Harvard. In 2007, Harvard made Sandel's course available to alumni around the world through webstreaming and podcasting. Over 5,000 participants signed up, and Harvard Clubs from Mexico to Australia organized local discussion groups in connection with the course. In May 2007, Sandel delivered a series of lectures at major universities in China and he has been a visiting professor at the Sorbonne, Paris. He is a member of the American Academy of Arts and Sciences and the Council on Foreign Relations. Sandel is the author of many books and has previously written for the Atlantic Monthly, the New Republic and the New York Times. He was the 2009 BBC Reith Lecturer.

Egos and Immorality

By PAUL KRUGMAN

In the wake of a devastating financial crisis, President Obama has enacted some modest and obviously needed regulation; he has proposed closing a few outrageous tax loopholes; and he has suggested that Mitt Romney’s history of buying and selling companies, often firing workers and gutting their pensions along the way, doesn’t make him the right man to run America’s economy.

Wall Street has responded — predictably, I suppose — by whining and throwing temper tantrums. And it has, in a way, been funny to see how childish and thin-skinned the Masters of the Universe turn out to be. Remember when Stephen Schwarzman of the Blackstone Group compared a proposal to limit his tax breaks to Hitler’s invasion of Poland? Remember when Jamie Dimon of JPMorgan Chase characterized any discussion of income inequality as an attack on the very notion of success?

But here’s the thing

:

If Wall Streeters are spoiled brats, they are spoiled brats with immense power and wealth at their disposal.And what they’re trying to do with that power and wealth right now is buy themselves not just policies that serve their interests, but immunity from criticism.

Actually, before I get to that, let me take a moment to debunk a fairy tale that we’ve been hearing a lot from Wall Street and its reliable defenders — a tale in which the incredible damage runaway finance inflicted on the U.S. economy gets flushed down the memory hole, and financiers instead become the heroes who saved America.

Once upon a time, this fairy tale tells us, America was a land of lazy managers and slacker workers.

Productivity languished, and American industry was fading away in the face of foreign competition.

Then square-jawed, tough-minded buyout kings like Mitt Romney and the fictional Gordon Gekko came to the rescue, imposing financial and work discipline. Sure, some people didn’t like it, and, sure, they made a lot of money for themselves along the way. But the result was a great economic revival, whose benefits trickled down to everyone.

You can see why Wall Street likes this story. But none of it — except the bit about the Gekkos

and the Romneys making lots of money — is true.

For the alleged productivity surge never actually happened. In fact, overall business productivity in America grew faster in the postwar generation, an era in which banks were tightly regulated and private equity barely existed, than it has since our political system decided that greed was good.

What about international competition?

We now think of America as a nation doomed to perpetual trade deficits, but it was not always thus. From the 1950s through the 1970s, we generally had more or less balanced trade, exporting about as much as we imported. The big trade deficits only started in the Reagan years, that is, during the era of runaway finance.

And what about that trickle-down? It never took place. There have been significant productivity gains these past three decades, although not on the scale that Wall Street’s self-serving legend would have you believe. However, only a small part of those gains got passed on to American workers.

So, no, financial wheeling and dealing did not do wonders for the American economy, and there are real questions about why, exactly, the wheeler-dealers have made so much money while generating such dubious results.

Those are, however, questions that the wheeler-dealers don’t want asked — and not, I think, just because they want to defend their tax breaks and other privileges. It’s also an ego thing. Vast wealth isn’t enough; they want deference, too, and they’re doing their best to buy it. It has been amazing to read about erstwhile Democrats on Wall Street going all in for Mitt Romney, not because they believe that he has good policy ideas, but because they’re taking President Obama’s very mild criticism of financial excesses as a personal insult.

And it has been especially sad to see some Democratic politicians with ties to Wall Street, like Newark’s mayor, Cory Booker, dutifully rise to the defense of their friends’ surprisingly fragile egos.

As I said at the beginning, in a way Wall Street’s self-centered, self-absorbed behavior has been kind of funny. But while this behavior may be funny, it is also deeply immoral.

Think about where we are right now, in the fifth year of a slump brought on by irresponsible bankers. The bankers themselves have been bailed out, but the rest of the nation continues to suffer terribly, with long-term unemployment still at levels not seen since the Great Depression, with a whole cohort of young Americans graduating into an abysmal job market.

And in the midst of this national nightmare, all too many members of the economic elite seem mainly concerned with the way the president apparently hurt their feelings.

That isn’t funny.

It’s shameful.

A version of this op-ed appeared in print on May 25, 2012, on page A31 of the New York edition with the headline: Egos And Immorality.

(The online version of this article appears in three parts. Click here to go to parts two and three.)

THE truly revolutionary impact of the Information Revolution is just beginning to be felt. But it is not "information" that fuels this impact. It is not "artificial intelligence." It is not the effect of computers and data processing on decision-making, policymaking, or strategy. It is something that practically no one foresaw or, indeed, even talked about ten or fifteen years ago: e-commerce -- that is, the explosive emergence of the Internet as a major, perhaps eventually the major, worldwide distribution channel for goods, for services, and, surprisingly, for managerial and professional jobs. This is profoundly changing economies, markets, and industry structures; products and services and their flow; consumer segmentation, consumer values, and consumer behavior; jobs and labor markets. But the impact may be even greater on societies and politics and, above all, on the way we see the world and ourselves in it.

At the same time, new and unexpected industries will no doubt emerge, and fast. One is already here: biotechnology. And another: fish farming. Within the next fifty years fish farming may change us from hunters and gatherers on the seas into "marine pastoralists" -- just as a similar innovation some 10,000 years ago changed our ancestors from hunters and gatherers on the land into agriculturists and pastoralists.

It is likely that other new technologies will appear suddenly, leading to major new industries. What they may be is impossible even to guess at. But it is highly probable -- indeed, nearly certain -- that they will emerge, and fairly soon. And it is nearly certain that few of them -- and few industries based on them -- will come out of computer and information technology. Like biotechnology and fish farming, each will emerge from its own unique and unexpected technology.

Of course, these are only predictions. But they are made on the assumption that the Information Revolution will evolve as several earlier technology-based "revolutions" have evolved over the past 500 years, since Gutenberg's printing revolution, around 1455. In particular the assumption is that the Information Revolution will be like the Industrial Revolution of the late eighteenth and early nineteenth centuries. And that is indeed exactly how the Information Revolution has been during its first fifty years.

The Railroad

HE Information Revolution is now at the point at which the Industrial Revolution was in the early 1820s, about forty years after James Watt's improved steam engine (first installed in 1776) was first applied, in 1785, to an industrial operation -- the spinning of cotton. And the steam engine was to the first Industrial Revolution what the computer has been to the Information Revolution -- its trigger, but above all its symbol. Almost everybody today believes that nothing in economic history has ever moved as fast as, or had a greater impact than, the Information Revolution. But the Industrial Revolution moved at least as fast in the same time span, and had probably an equal impact if not a greater one. In short order it mechanized the great majority of manufacturing processes, beginning with the production of the most important industrial commodity of the eighteenth and early nineteenth centuries: textiles. Moore's Law asserts that the price of the Information Revolution's basic element, the microchip, drops by 50 percent every eighteen months. The same was true of the products whose manufacture was mechanized by the first Industrial Revolution. The price of cotton textiles fell by 90 percent in the fifty years spanning the start of the eighteenth century. The production of cotton textiles increased at least 150-fold in Britain alone in the same period. And although textiles were the most visible product of its early years, the Industrial Revolution mechanized the production of practically all other major goods, such as paper, glass, leather, and bricks. Its impact was by no means confined to consumer goods. The production of iron and ironware -- for example, wire -- became mechanized and steam-driven as fast as did that of textiles, with the same effects on cost, price, and output. By the end of the Napoleonic Wars the making of guns was steam-driven throughout Europe; cannons were made ten to twenty times as fast as before, and their cost dropped by more than two thirds. By that time Eli Whitney had similarly mechanized the manufacture of muskets in America and had created the first mass-production industry.

These forty or fifty years gave rise to the factory and the "working class." Both were still so few in number in the mid-1820s, even in England, as to be statistically insignificant. But psychologically they had come to dominate (and soon would politically also). Before there were factories in America, Alexander Hamilton foresaw an industrialized country in his 1791 Report on Manufactures. A decade later, in 1803, a French economist, Jean-Baptiste Say, saw that the Industrial Revolution had changed economics by creating the "entrepreneur."

The social consequences went far beyond factory and working class. As the historian Paul Johnson has pointed out, in A History of the American People (1997), it was the explosive growth of the steam-engine-based textile industry that revived slavery. Considered to be practically dead by the Founders of the American Republic, slavery roared back to life as the cotton gin -- soon steam-driven -- created a huge demand for low-cost labor and made breeding slaves America's most profitable industry for some decades.

The Industrial Revolution also had a great impact on the family. The nuclear family had long been the unit of production. On the farm and in the artisan's workshop husband, wife, and children worked together. The factory, almost for the first time in history, took worker and work out of the home and moved them into the workplace, leaving family members behind -- whether spouses of adult factory workers or, especially in the early stages, parents of child factory workers.

Indeed, the "crisis of the family" did not begin after the Second World War. It began with the Industrial Revolution -- and was in fact a stock concern of those who opposed the Industrial Revolution and the factory system. (The best description of the divorce of work and family, and of its effect on both, is probably Charles Dickens's 1854 novel Hard Times.)

But despite all these effects, the Industrial Revolution in its first half century only mechanized the production of goods that had been in existence all along. It tremendously increased output and tremendously decreased cost. It created both consumers and consumer products. But the products themselves had been around all along. And products made in the new factories differed from traditional products only in that they were uniform, with fewer defects than existed in products made by any but the top craftsmen of earlier periods.

There was only one important exception, one new product, in those first fifty years: the steamboat, first made practical by Robert Fulton in 1807. It had little impact until thirty or forty years later. In fact, until almost the end of the nineteenth century more freight was carried on the world's oceans by sailing vessels than by steamships.

Then, in 1829, came the railroad, a product truly without precedent, and it forever changed economy, society, and politics.

In retrospect it is difficult to imagine why the invention of the railroad took so long. Rails to move carts had been around in coal mines for a very long time. What could be more obvious than to put a steam engine on a cart to drive it, rather than have it pushed by people or pulled by horses? But the railroad did not emerge from the cart in the mines. It was developed quite independently. And it was not intended to carry freight. On the contrary, for a long time it was seen only as a way to carry people. Railroads became freight carriers thirty years later, in America. (In fact, as late as the 1870s and 1880s the British engineers who were hired to build the railroads of newly Westernized Japan designed them to carry passengers -- and to this day Japanese railroads are not equipped to carry freight.) But until the first railroad actually began to operate, it was virtually unanticipated.

Within five years, however, the Western world was engulfed by the biggest boom history had ever seen -- the railroad boom. Punctuated by the most spectacular busts in economic history, the boom continued in Europe for thirty years, until the late 1850s, by which time most of today's major railroads had been built. In the United States it continued for another thirty years, and in outlying areas -- Argentina, Brazil, Asian Russia, China -- until the First World War. The railroad was the truly revolutionary element of the Industrial Revolution, for not only did it create a new economic dimension but also it rapidly changed what I would call the mental geography. For the first time in history human beings had true mobility. For the first time the horizons of ordinary people expanded. Contemporaries immediately realized that a fundamental change in mentality had occurred. (A good account of this can be found in what is surely the best portrayal of the Industrial Revolution's society in transition, George Eliot's 1871 novel Middlemarch.) As the great French historian Fernand Braudel pointed out in his last major work, The Identity of France (1986), it was the railroad that made France into one nation and one culture. It had previously been a congeries of self-contained regions, held together only politically. And the role of the railroad in creating the American West is, of course, a commonplace in U.S. history.

Routinization

IKE the Industrial Revolution two centuries ago, the Information Revolution so far -- that is, since the first computers, in the mid-1940s -- has only transformed processes that were here all along. In fact, the real impact of the Information Revolution has not been in the form of "information" at all. Almost none of the effects of information envisaged forty years ago have actually happened. For instance, there has been practically no change in the way major decisions are made in business or government. But the Information Revolution has routinized traditional processes in an untold number of areas.

The software for tuning a piano converts a process that traditionally took three hours into one that takes twenty minutes. There is software for payrolls, for inventory control, for delivery schedules, and for all the other routine processes of a business. Drawing the inside arrangements of a major building (heating, water supply, sewerage, and so on) such as a prison or a hospital formerly took, say, twenty-five highly skilled draftsmen up to fifty days; now there is a program that enables one draftsman to do the job in a couple of days, at a tiny fraction of the cost. There is software to help people do their tax returns and software that teaches hospital residents how to take out a gall bladder. The people who now speculate in the stock market online do exactly what their predecessors in the 1920s did while spending hours each day in a brokerage office. The processes have not been changed at all. They have been routinized, step by step, with a tremendous saving in time and, often, in cost. The psychological impact of the Information Revolution, like that of the Industrial Revolution, has been enormous. It has perhaps been greatest on the way in which young children learn. Beginning at age four (and often earlier), children now rapidly develop computer skills, soon surpassing their elders; computers are their toys and their learning tools. Fifty years hence we may well conclude that there was no "crisis of American education" in the closing years of the twentieth century -- there was only a growing incongruence between the way twentieth-century schools taught and the way late-twentieth-century children learned. Something similar happened in the sixteenth-century university, a hundred years after the invention of the printing press and movable type.

But as to the way we work, the Information Revolution has so far simply routinized what was done all along. The only exception is the CD-ROM, invented around twenty years ago to present operas, university courses, a writer's oeuvre, in an entirely new way. Like the steamboat, the CD-ROM has not immediately caught on.

The Meaning of E-commerce

E-COMMERCE is to the Information Revolution what the railroad was to the Industrial Revolution -- a totally new, totally unprecedented, totally unexpected development. And like the railroad 170 years ago, e-commerce is creating a new and distinct boom, rapidly changing the economy, society, and politics. One example: A mid-sized company in America's industrial Midwest, founded in the 1920s and now run by the grandchildren of the founder, used to have some 60 percent of the market in inexpensive dinnerware for fast-food eateries, school and office cafeterias, and hospitals within a hundred-mile radius of its factory. China is heavy and breaks easily, so cheap china is traditionally sold within a small area. Almost overnight this company lost more than half of its market. One of its customers, a hospital cafeteria where someone went "surfing" on the Internet, discovered a European manufacturer that offered china of apparently better quality at a lower price and shipped cheaply by air. Within a few months the main customers in the area shifted to the European supplier. Few of them, it seems, realize -- let alone care -- that the stuff comes from Europe.

In the new mental geography created by the railroad, humanity mastered distance. In the mental geography of e-commerce, distance has been eliminated. There is only one economy and only one market.

One consequence of this is that every business must become globally competitive, even if it manufactures or sells only within a local or regional market. The competition is not local anymore -- in fact, it knows no boundaries. Every company has to become transnational in the way it is run. Yet the traditional multinational may well become obsolete. It manufactures and distributes in a number of distinct geographies, in which it is a local company. But in e-commerce there are neither local companies nor distinct geographies. Where to manufacture, where to sell, and how to sell will remain important business decisions. But in another twenty years they may no longer determine what a company does, how it does it, and where it does it.

At the same time, it is not yet clear what kinds of goods and services will be bought and sold through e-commerce and what kinds will turn out to be unsuitable for it. This has been true whenever a new distribution channel has arisen. Why, for instance, did the railroad change both the mental and the economic geography of the West, whereas the steamboat -- with its equal impact on world trade and passenger traffic -- did neither? Why was there no "steamboat boom"?

Equally unclear has been the impact of more-recent changes in distribution channels -- in the shift, for instance, from the local grocery store to the supermarket, from the individual supermarket to the supermarket chain, and from the supermarket chain to Wal-Mart and other discount chains. It is already clear that the shift to e-commerce will be just as eclectic and unexpected.

Here are a few examples. Twenty-five years ago it was generally believed that within a few decades the printed word would be dispatched electronically to individual subscribers' computer screens. Subscribers would then either read text on their computer screens or download it and print it out. This was the assumption that underlay the CD-ROM. Thus any number of newspapers and magazines, by no means only in the United States, established themselves online; few, so far, have become gold mines. But anyone who twenty years ago predicted the business of Amazon.com and barnesandnoble.com -- that is, that books would be sold on the Internet but delivered in their heavy, printed form -- would have been laughed off the podium. Yet Amazon.com and barnesandnoble.com are in exactly that business, and they are in it worldwide. The first order for the U.S. edition of my most recent book, Management Challenges for the 21st Century (1999), came to Amazon.com, and it came from Argentina. Another example: Ten years ago one of the world's leading automobile companies made a thorough study of the expected impact on automobile sales of the then emerging Internet. It concluded that the Internet would become a major distribution channel for used cars, but that customers would still want to see new cars, to touch them, to test-drive them. In actuality, at least so far, most used cars are still being bought not over the Internet but in a dealer's lot. However, as many as half of all new cars sold (excluding luxury cars) may now actually be "bought" over the Internet. Dealers only deliver cars that customers have chosen well before they enter the dealership. What does this mean for the future of the local automobile dealership, the twentieth century's most profitable small business?

Another example: Traders in the American stock-market boom of 1998 and 1999 increasingly buy and sell online. But investors seem to be shifting away from buying electronically. The major U.S. investment vehicle is mutual funds. And whereas almost half of all mutual funds a few years ago were bought electronically, it is estimated that the figure will drop to 35 percent next year and to 20 percent by 2005. This is the opposite of what "everybody expected" ten or fifteen years ago.

The fastest-growing e-commerce in the United States is in an area where there was no "commerce" until now -- in jobs for professionals and managers. Almost half of the world's largest companies now recruit through Web sites, and some two and a half million managerial and professional people (two thirds of them not even engineers or computer professionals) have their résumés on the Internet and solicit job offers over it. The result is a completely new labor market.

This illustrates another important effect of e-commerce. New distribution channels change who the customers are. They change not only how customers buy but also what they buy. They change consumer behavior, savings patterns, industry structure -- in short, the entire economy. This is what is now happening, and not only in the United States but increasingly in the rest of the developed world, and in a good many emerging countries, including mainland China.

Luther, Machiavelli, and the Salmon

HE railroad made the Industrial Revolution accomplished fact. What had been revolution became establishment. And the boom it triggered lasted almost a hundred years. The technology of the steam engine did not end with the railroad. It led in the 1880s and 1890s to the steam turbine, and in the 1920s and 1930s to the last magnificent American steam locomotives, so beloved by railroad buffs. But the technology centered on the steam engine and in manufacturing operations ceased to be central. Instead the dynamics of the technology shifted to totally new industries that emerged almost immediately after the railroad was invented, not one of which had anything to do with steam or steam engines. The electric telegraph and photography were first, in the 1830s, followed soon thereafter by optics and farm equipment. The new and different fertilizer industry, which began in the late 1830s, in short order transformed agriculture. Public health became a major and central growth industry, with quarantine, vaccination, the supply of pure water, and sewers, which for the first time in history made the city a more healthful habitat than the countryside. At the same time came the first anesthetics.

With these major new technologies came major new social institutions: the modern postal service, the daily paper, investment banking, and commercial banking, to name just a few. Not one of them had much to do with the steam engine or with the technology of the Industrial Revolution in general. It was these new industries and institutions that by 1850 had come to dominate the industrial and economic landscape of the developed countries.

This is very similar to what happened in the printing revolution -- the first of the technological revolutions that created the modern world. In the fifty years after 1455, when Gutenberg had perfected the printing press and movable type he had been working on for years, the printing revolution swept Europe and completely changed its economy and its psychology. But the books printed during the first fifty years, the ones called incunabula, contained largely the same texts that monks, in their scriptoria, had for centuries laboriously copied by hand: religious tracts and whatever remained of the writings of antiquity. Some 7,000 titles were published in those first fifty years, in 35,000 editions. At least 6,700 of these were traditional titles. In other words, in its first fifty years printing made available -- and increasingly cheap -- traditional information and communication products. But then, some sixty years after Gutenberg, came Luther's German Bible -- thousands and thousands of copies sold almost immediately at an unbelievably low price. With Luther's Bible the new printing technology ushered in a new society. It ushered in Protestantism, which conquered half of Europe and, within another twenty years, forced the Catholic Church to reform itself in the other half. Luther used the new medium of print deliberately to restore religion to the center of individual life and of society. And this unleashed a century and a half of religious reform, religious revolt, religious wars.

At the very same time, however, that Luther used print with the avowed intention of restoring Christianity, Machiavelli wrote and published The Prince (1513), the first Western book in more than a thousand years that contained not one biblical quotation and no reference to the writers of antiquity. In no time at all The Prince became the "other best seller" of the sixteenth century, and its most notorious but also most influential book. In short order there was a wealth of purely secular works, what we today call literature: novels and books in science, history, politics, and, soon, economics. It was not long before the first purely secular art form arose, in England -- the modern theater. Brand-new social institutions also arose: the Jesuit order, the Spanish infantry, the first modern navy, and, finally, the sovereign national state. In other words, the printing revolution followed the same trajectory as did the Industrial Revolution, which began 300 years later, and as does the Information Revolution today.

What the new industries and institutions will be, no one can say yet. No one in the 1520s anticipated secular literature, let alone the secular theater. No one in the 1820s anticipated the electric telegraph, or public health, or photography.

The one thing (to say it again) that is highly probable, if not nearly certain, is that the next twenty years will see the emergence of a number of new industries. At the same time, it is nearly certain that few of them will come out of information technology, the computer, data processing, or the Internet. This is indicated by all historical precedents. But it is true also of the new industries that are already rapidly emerging. Biotechnology, as mentioned, is already here. So is fish farming.

Twenty-five years ago salmon was a delicacy. The typical convention dinner gave a choice between chicken and beef. Today salmon is a commodity, and is the other choice on the convention menu. Most salmon today is not caught at sea or in a river but grown on a fish farm. The same is increasingly true of trout. Soon, apparently, it will be true of a number of other fish. Flounder, for instance, which is to seafood what pork is to meat, is just going into oceanic mass production. This will no doubt lead to the genetic development of new and different fish, just as the domestication of sheep, cows, and chickens led to the development of new breeds among them.

But probably a dozen or so technologies are at the stage where biotechnology was twenty-five years ago -- that is, ready to emerge.

There is also a service waiting to be born: insurance against the risks of foreign-exchange exposure. Now that every business is part of the global economy, such insurance is as badly needed as was insurance against physical risks (fire, flood) in the early stages of the Industrial Revolution, when traditional insurance emerged. All the knowledge needed for foreign-exchange insurance is available; only the institution itself is still lacking.

The next two or three decades are likely to see even greater technological change than has occurred in the decades since the emergence of the computer, and also even greater change in industry structures, in the economic landscape, and probably in the social landscape as well.

The Gentleman Versus the Technologist

HE new industries that emerged after the railroad owed little technologically to the steam engine or to the Industrial Revolution in general. They were not its "children after the flesh" -- but they were its "children after the spirit." They were possible only because of the mind-set that the Industrial Revolution had created and the skills it had developed. This was a mind-set that accepted -- indeed, eagerly welcomed -- invention and innovation. It was a mind-set that accepted, and eagerly welcomed, new products and new services. It also created the social values that made possible the new industries. Above all, it created the "technologist." Social and financial success long eluded the first major American technologist, Eli Whitney, whose cotton gin, in 1793, was as central to the triumph of the Industrial Revolution as was the steam engine. But a generation later the technologist -- still self-taught -- had become the American folk hero and was both socially accepted and financially rewarded. Samuel Morse, the inventor of the telegraph, may have been the first example; Thomas Edison became the most prominent. In Europe the "businessman" long remained a social inferior, but the university-trained engineer had by 1830 or 1840 become a respected "professional."

By the 1850s England was losing its predominance and beginning to be overtaken as an industrial economy, first by the United States and then by Germany. It is generally accepted that neither economics nor technology was the major reason. The main cause was social. Economically, and especially financially, England remained the great power until the First World War. Technologically it held its own throughout the nineteenth century. Synthetic dyestuffs, the first products of the modern chemical industry, were invented in England, and so was the steam turbine. But England did not accept the technologist socially. He never became a "gentleman." The English built first-rate engineering schools in India but almost none at home. No other country so honored the "scientist" -- and, indeed, Britain retained leadership in physics throughout the nineteenth century, from James Clerk Maxwell and Michael Faraday all the way to Ernest Rutherford. But the technologist remained a "tradesman." (Dickens, for instance, showed open contempt for the upstart ironmaster in his 1853 novel Bleak House.)

Nor did England develop the venture capitalist, who has the means and the mentality to finance the unexpected and unproved. A French invention, first portrayed in Balzac's monumental La Comédie humaine, in the 1840s, the venture capitalist was institutionalized in the United States by J. P. Morgan and, simultaneously, in Germany and Japan by the universal bank. But England, although it invented and developed the commercial bank to finance trade, had no institution to finance industry until two German refugees, S. G. Warburg and Henry Grunfeld, started an entrepreneurial bank in London, just before the Second World War.

Bribing the Knowledge Worker

HAT might be needed to prevent the United States from becoming the England of the twenty-first century? I am convinced that a drastic change in the social mind-set is required -- just as leadership in the industrial economy after the railroad required the drastic change from "tradesman" to "technologist" or "engineer."

What we call the Information Revolution is actually a Knowledge Revolution. What has made it possible to routinize processes is not machinery; the computer is only the trigger. Software is the reorganization of traditional work, based on centuries of experience, through the application of knowledge and especially of systematic, logical analysis. The key is not electronics; it is cognitive science. This means that the key to maintaining leadership in the economy and the technology that are about to emerge is likely to be the social position of knowledge professionals and social acceptance of their values. For them to remain traditional "employees" and be treated as such would be tantamount to England's treating its technologists as tradesmen -- and likely to have similar consequences.

Today, however, we are trying to straddle the fence -- to maintain the traditional mind-set, in which capital is the key resource and the financier is the boss, while bribing knowledge workers to be content to remain employees by giving them bonuses and stock options. But this, if it can work at all, can work only as long as the emerging industries enjoy a stock-market boom, as the Internet companies have been doing. The next major industries are likely to behave far more like traditional industries -- that is, to grow slowly, painfully, laboriously.

The early industries of the Industrial Revolution -- cotton textiles, iron, the railroads -- were boom industries that created millionaires overnight, like Balzac's venture bankers and like Dickens's ironmaster, who in a few years grew from a lowly domestic servant into a "captain of industry." The industries that emerged after 1830 also created millionaires. But they took twenty years to do so, and it was twenty years of hard work, of struggle, of disappointments and failures, of thrift. This is likely to be true of the industries that will emerge from now on. It is already true of biotechnology.

Bribing the knowledge workers on whom these industries depend will therefore simply not work. The key knowledge workers in these businesses will surely continue to expect to share financially in the fruits of their labor. But the financial fruits are likely to take much longer to ripen, if they ripen at all. And then, probably within ten years or so, running a business with (short-term) "shareholder value" as its first -- if not its only -- goal and justification will have become counterproductive. Increasingly, performance in these new knowledge-based industries will come to depend on running the institution so as to attract, hold, and motivate knowledge workers. When this can no longer be done by satisfying knowledge workers' greed, as we are now trying to do, it will have to be done by satisfying their values, and by giving them social recognition and social power. It will have to be done by turning them from subordinates into fellow executives, and from employees, however well paid, into partners.

The online version of this article appears in three parts. Click here to go to parts one and two.

Economics and Morality

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Paul Krugman's Framing

Lakoff and Wehling are authors of The Little Blue Book: The Essential Guide to Thinking and Talking Democratic, where morally-based framing is discussed in great detail.

In his June 11, 2012 op-ed in the New York Times, Paul Krugman goes beyond economic analysis to bring up the morality and the conceptual framing that determines economic policy. He speaks of "the people the economy is supposed to serve" -- "the unemployed," and "workers"-- and "the mentality that sees economic pain as somehow redeeming."

Krugman is right to bring these matters up. Markets are not provided by nature. They are constructed -- by laws, rules, and institutions. All of these have moral bases of one sort or another. Hence, all markets are moral, according to someone's sense of morality. The only question is, Whose morality? In contemporary America, it is conservative versus progressive morality that governs forms of economic policy. The systems of morality behind economic policies need to be discussed.

Most Democrats, consciously or mostly unconsciously, use a moral view deriving from an idealized notion of nurturant parenting, a morality based on caring about their fellow citizens, and acting responsibly both for themselves and others with what President Obama has called "an ethic of excellence" -- doing one's best not just for oneself, but for one's family, community, and country, and for the world. Government on this view has two moral missions: to protect and empower everyone equally.

The means is The Public, which provides infrastructure, public education, and regulations to maximize health, protection and justice, a sustainable environment, systems for information and transportation, and so forth. The Public is necessary for The Private, especially private enterprise, which relies on all of the above. The liberal market economy maximizes overall freedom by serving public needs: providing needed products at reasonable prices for reasonable profits, paying workers fairly and treating them well, and serving the communities to which they belong. In short, "the people the economy is supposed to serve" are ordinary citizens. This has been the basis of American democracy from the beginning.

Conservatives hold a different moral perspective, based on an idealized notion of a strict father family. In this model, the father is The Decider, who is in charge, knows right from wrong, and teaches children morality by punishing them painfully when they do wrong, so that they can become disciplined enough to do right and thrive in the market. If they are not well-off, they are not sufficiently disciplined and so cannot be moral: they deserve their poverty. Applied to conservative politics, this yields a moral hierarchy with the wealthy, morally disciplined citizens deservedly on the top.

Democracy is seen as providing liberty, the freedom to seek one's self interest with minimal responsibility for the interests or well-being of others. It is laissez-faire liberty. Responsibility is personal, not social. People should be able to be their own strict fathers, Deciders on their own -- the ideal of conservative populists, who are voting their morality not their economic interests. Those who are needy are assumed to be weak and undisciplined and therefore morally lacking. The most moral people are the rich. The slogan, "Let the market decide," sees the market itself as The Decider, the ultimate authority, where there should be no government power over it to regulate, tax, protect workers, and to impose fines in tort cases. Those with no money are undisciplined, not moral, and so should be punished. The poor can earn redemption only by suffering and thus, supposedly, getting an incentive to do better.

If you believe all of this, and if you see the world only from this perspective, then you cannot possibly perceive the deep economic truth that The Public is necessary for The Private, for a decent private life and private enterprise. The denial of this truth, and the desire to eliminate The Public altogether, can unfortunately come naturally and honestly via this moral perspective.

When Krugman speaks of those who have "the mentality that sees economic pain as somehow redeeming," he is speaking of those who have ordinary conservative morality, the more than forty percent who voted for John McCain and who now support Mitt Romney -- and Angela Merkel's call for "austerity" in Germany. It is conservative moral thought that gives the word "austerity" a positive moral connotation.

Just as the authority of a strict father must always be maintained, so the highest value in this conservative moral system is the preservation, extension, and ultimate victory of the conservative moral system itself. Preaching about the deficit is only a means to an end -- eliminating funding for The Public and bringing us closer to permanent conservative domination. From this perspective, the Paul Ryan budget makes sense -- cut funding for The Public (the antithesis of conservative morality) and reward the rich (who are the best people from a conservative moral perspective). Economic truth is irrelevant here.

Historically, American democracy is premised on the moral principle that citizens care about each other and that a robust Public is the way to act on that care. Who is the market economy for? All of us. Equally. But with the sway of conservative morality, we are moving toward a 1 percent economy -- for the bankers, the wealthy investors, and the super rich like the six members of the family that owns Walmart and has accumulated more wealth than the bottom 30 percent of Americans. Six people!

What is wrong with a 1 percent economy? As Joseph Stiglitz has pointed out in The Price of Inequality, the 1 percent economy eliminates opportunity for over a hundred million Americans. From the Land of Opportunity, we are in danger of becoming the Land of Opportunism.

If there is hope in our present situation, it lies with people who are morally complex, who are progressive on some issues and conservative on others -- often called "moderates," "independents," and "swing voters."They have both moral systems in their brains: when one is turned on, the other is turned off. The one that is turned on more often gets strongest. Quoting conservative language, even to argue against it, just strengthens conservatism in the brain of people who are morally complex. It is vital that they hear the progressive values of the traditional American moral system, the truth that The Public is necessary for The Private, the truth that our freedom depends on a robust Public, and that the economy is for all of us.

We must talk about those truths -- over and over, every day.

To help, we have written The Little Blue Book. It can be ordered from Barnes & Noble, Amazon, and iTunes, and after June 26 at your local bookstore.

Monday, 20 July 2015

Leadership

and

the New Science:

Discovering Order

in a Chaotic World

Descrizione

This pioneering work shows how revolutionary discoveries in quantum physics, chaos theory, and biology provide powerful insights for transforming how we organize work, people and life. "Margaret Wheatley pushes our thinking about people and organizations to a new level."--Ken Blanchard. Color photos.

Indice e argomenti trattati

Prologue: Maps to the Real World

ix

Introduction: Searching for a Simpler Way to Lead Organizations

3

Discovering an Orderly World

17

Newtonian Organizations in a Quantum Age

27

Space Is Not Empty: Invisible Fields That Shape Behavior

49

The Participative Nature of the Universe

61

Change, Stability, and Renewal: The Paradoxes of Self-Organizing Systems

75

The Creative Energy of the Universe---Information

93

Chaos and the Strange Attractor of Meaning

115

Change---The Capacity of Life

137

The New Scientific Management

157

The Real World

169

Epilogue: Journeying to a New World

189

To Further Explore the Ideas and Work of Margaret Wheatley

195

The Berkana Institute

196

Bibliography

198

Index

205

About the Author

This book is beyond five stars, and not just for business, where it is receiving all the praise it is due, but within government, where it has not yet been noticed. It was recommended to me by the author of Building a Knowledge-Driven Organization and I now recommend it to everyone I know. If there are two books that can "change the world," these are the ones.

Although the Chinese understood all this stuff centuries ago (Yin/Yang, space between the dots, the human web), the author is correct when she notes late in the book that the commoditization of the human worker (Cf. Lionel Tiger, Manufacture of Evil: Ethics, Evolution, and the Industrial System) and the emphasis on scientific objectivity and scientific manager (Cf. Jean Ralston Saul, Voltaire's Bastards: The Dictatorship of Reason in the West) were perhaps the greatest error we might have made in terms of long-run progress. Coincidentally, as I finished the book, on the Discovery channel in the background they were discussing how the leveeing of the Mississippi blocked the Louisiana watershed from cleansing the Mississippi naturally, as it once used to.

It's all about systems--the author does cite Donella Meadows' 1982 article in Stewart Brand's Co-Evolution Quarterly, but does not pay much heed to the large body of literature that thrived in the 1970's around the Club of Rome.

There are perhaps three bottom lines in this book that I would recommend to any government leader who hopes to stabilize and reconstruct our world:

1) Information is what defines who we are, what we can become, what we can perceive, what we are capable of achieving. Blocking or controlling information flows stunts our growth and virtually assures defeat if not death. It is the optimization of listening--being open to *all* information (and especially all the information the secret world now ignores)--that optimizes our ability to adjust, evolve, and grow.

2) Command & control is history, block and wire diagrams are history. General Al Gray had it right in the 1990's when he talked about "commander's intent" as the baseline. Leaders today need to be disruptive, to look for dissonant views and news, and to empower all individuals at all levels with both information, and the authority to act on that information.

3) Disorder is an *opportunity*. We have the power to define ourselves, our "opponents," and our circumstances in ways that can either inspire protective, constricted, secretive, "armed" responses, or inclusive, open, sharing "pro-active" peaceful responses.

The author is to be praised for noting early on in the book that "Ethical and moral questions are no longer fuzzy religious concepts but key elements in the relationship any organization has with colleagues, stakeholders, and communities." I would extend that to note that social ethics and foreign policy ethics are the foundation for sustainable life on the planet, and we appear to be a long way from understanding that it is ethics, not guns, that will stabilize and fertilize...Cf Jonathan Schell, The Unconquerable World: Power, Nonviolence, and the Will of the People.

It also merits comment that the author essentially kills the industry of forecasting, scenarios, modeling, and futures simulations. I agree with her view (and that of others) that early warning is achieved, not through the theft of secret plans and intentions or the forecasting of behavior, but rather by casting a very wide net, listening carefully to all that is openly available, sharing it very widely (as the LINUX guys say, put enough eyeballs on it, and no bug will be invisible), and then being open to changed relationships. Trying to maintain the status quo will simply not do.

I give the author credit for carrying out an extraordinary survey of the literature on quantum mechanics, and for developing a PhD-level explanation of why old organization theory, based on the linear concepts of Newtonian physics, is bad for us, and how the new emergent organization theory, understood by too few, is let about the things and more about the relationships between and among the things.

This is an elegant essay and a heroic personal work of discovery, interpretation, and integration. While I would have liked to see more credit given to Kuhn, Drucker, Garfield, Brand, Rheingold, and numerous others that I have reviewed here for Amazon, on balance, given the academic narrowness of her Harvard PhD, I think the author has performed at the Olympic level. This is a radical book, somewhat reminiscent of Charles Hampden-Turner's book, Radical Man: The Process of Psycho-Social Development. which as I recall was not accepted by Harvard as a thesis at the time. Perhaps Harvard is evolving (smile).Robert D. Steele (Oakton, VA United States)

She exposes the bright conclusions from her experience of working as a consultant, and these conclusions are confirmed by quantum physics as well:

- The things we fear most in organizations - disruptions, confusion, chaos - need not be interpreted as signs that we are about to be destroyed. Instead, these conditions are necessary to awaken creativity.

- What is critical is the relationship created between two or more elements. Systems influence individuals, and individuals call form systems.

- There is no objective reality; the environment we experience does not exist "out there". It is co-created through our acts of observation, what we choose to notice and worry about.

- Acting should precede planning.

- Instead of the ability to analyze and predict, we need to know how to stay acutely aware of what's happening now, and we need to be better, faster learners from what just happened.

- We need fewer descriptions of tasks and instead learn how to facilitate process.

- Power becomes a problem, not a capacity. People use their creativity to work against these leaders, or in spite of them; they refuse to contribute positively to the organization.

- Those who have used music metaphors to describe working together, especially jazz metaphors, are sensing to the nature of this quantum world. This world demands that we be present together, and be willing to improvise.

- If a manager is told that a new trainee is particularly gifted, that manager will see genius emerging from the trainee's mouth even in obscure statements. But if the manager is told that his or her new hire is a bit slow on the uptake, the manager will interpret a brilliant idea as a sure sign of sloppy thinking of obfuscation.

- In quantum world, what you see is what you get.

- Every time we go to measure something, we interfere.

- A place where the act of looking for certain information evokes the information we went looking for - and simultaneously eliminates our opportunity to observe other information.

- Every observation is preceded by a choice about what to observer.

- We all construct the world though lenses of our own making and use these to filter and select.

- It simply doesn't work to ask people to sign on when they haven't been involved in the planning process.

- Roles mean nothing without understanding the network of relationships and the resources that are required to support the work of that person. In this relational world, it is foolish to think we can define any person solely in terms of isolated tasks and accountabilities.

- What is distinguishable and important, he says, are the kinds of connections.

- Our old views constrain us. They deprive us from engaging fully with this universe of potentials.

Based on the parallels above mentioned, Margaret J. Weathley brings lot of compelling ideas about the leadership and organizational management. This book isn't a collection of dos and don'ts, but invigorates deep creative thinking.

For many years, Margaret Wheatley has written eloquently about how to create resilient and adaptive organizations where people are seen as the blessing, not the problem.

She has led the way in demonstrating how perspectives about chaos, networks, and relationships that come from the new sciences can be applied to human organizations. Such organizations become creative, self-organizing living systems, rather than the more common highly controlled mechanistic systems that only create robotic behaviors.

In short, Margaret Wheatley is one of the most innovative and influential organizational thinkers of our time who has tested her ideas and perceptions in many different settings and cultures.

Finding Our Way is a collection of her practice-focused articles, where she applies themes she has addressed throughout her career to detail the organizational practices and behaviors that bring them to life. "The pieces presented here," she writes, "represent more than ten years of work, of how I took the ideas in my books and applied them in practice in many different situations. However, this is more than a collection of articles. I updated, revised or substantially added to the original content of each one. In this way, everything written here represents my most current views on these subjects."

Provocative, challenging, poetic, and often deeply moving, Finding Our Way sums up Wheatley's thinking on a diverse scope of topics, from leadership and management, to social change, to our personal role in these turbulent times; from provocative social commentary to specific organizational practices and more.

About the Author

Margaret (Meg) Wheatley writes, teaches and speaks about radically new practices and ideas for organizing in chaotic times. She has worked in virtually every type of organization and on all continents (except Antarctica), and has been a dedicated global citizen since her youth. She has been an organizational consultant and researcher since 1973, a professor of management in two graduate programs, and serves as president of The Berkana Institute, a global charitable leadership foundation. She received her doctorate from Harvard University and holds an M.A. in systems thinking from New York University. She is the author of three other books: the pathbreaking bestseller, Leadership and the New Science; and Turning to One Another: Simple Conversations to Restore Hope to the Future; and A Simpler Way (coauthored with Myron Kellner-Rogers.)

An Invitation to the Reader

There is a simpler, finer way to organize human endeavor.

Over many years of work all over the world, I've learned that if we organize in the same way that the rest of life does, we develop the skills we need: we become resilient, adaptive, aware, and creative. We enjoy working together. And life’s processes work everywhere, no matter the culture, group, or person, because these are basic dynamics shared by all living beings.

Western cultural views of how best to organize and lead (now the methods most used in the world) are contrary to what life teaches. Leaders use control and imposition rather than participative, self-organizing processes. They react to uncertainty and chaos by tightening already feeble controls, rather than engaging people's best capacities to learn and adapt. In doing so, they only create more chaos. Leaders incite primitive emotions of fear, scarcity, and self-interest to get people to do their work, rather than the more noble human traits of cooperation, caring, and generosity. This has led to this difficult time, when nothing seems to work as we want it to, when too many of us feel frustrated, disengaged, and anxious.

I invite you to join me in this work of creating more capable, harmonious, creative,

and generous organizations and communities.

There is a simpler way, and we each need to play our part in bringing it into robust practice.

I have declared this for many years and seen it to be true in many places. This simpler way is demonstrated to us in daily life, not the life we see on the news with its unending stories of human grief and horror, but what we feel when we experience a sense of life’s deep harmony, beauty, and power, of how we feel when we see people helping each other, when we feel creative, when we know we’re making a difference, when life feels purposeful.

Monday, 22 June 2015

Reinventing Fire Executive Summary

Digging up and burning the deposits of ancient sunlight stored eons ago in primeval swamps has transformed human existence and made industrial and urban civilization possible. However, those roughly four cubic miles of fossil fuels every year are no longer the only, best, or even cheapest way to sustain and expand the global economy—whether or not we count fossil fuels’ hidden costs.

Those “external” costs, paid not at the fuel pump or electric meter but in our taxes, wealth, and health, are not counted in theReinventing Fireanalysis, but are disturbingly large. Tens of billions of taxpayer dollars each year subsidize America’s fossil fuels, and even more flow to the systems that burn those fuels, distorting market choices by making the fuels look far cheaper than they really are. But the biggest hidden costs are economic and military.

America’s seemingly two-billion-dollar-a-day oil habit actually costs upwards of three times that much—six billion dollars a day, or a sixth of GDP. That’s due to three kinds of hidden costs, each about a half-trillion dollars per year: the macro economic costs of oil dependence, the microeconomic costs of oil-price volatility, and the military costs of forces whose primary mission is intervention in the Persian Gulf. Those military costs are about ten times what we pay to buy oil from the Persian Gulf, and rival total defense spending at the height of the Cold War.

Any costs to health, safety, environment, security of energy supply, world stability and peace, or national independence or reputation are extra. Coal, too, has hidden costs, chiefly to health, of about $180–530 billion per year, and natural gas had lesser but nontrivial externalities even before shale-gas “fracking” emerged.

All fossil fuels, to varying degrees, also incur climate risks that society’s leading professional risk managers—reinsurers and the military—warn will cost us dearly. And even if fossil fuels had no hidden costs, they are all finite, with extraction peaking typically in this generation. Yet “peak oil” is now emerging in demand before supply. Thus industrialized countries’ total oil use peaked in 2005, U.S. gasoline use in 2007. Even U.S. coal use peaked in 2005, and in 2005–10, coal lost 12% of its share of U.S. electrical services (95% of its market) to natural gas, efficiency, and renewables. This is not because these fuels’ hidden costs have been properly internalized yet into their market prices, but rather because those market prices today are too high and volatile to sustain sales against rising competition.

Making a dollar of U.S. GDP in 2009 took 60% less oil, 50% less energy, 63% less directly burned natural gas, and 20% less electricity than it did in 1975, because more efficient use and alternative supplies have become cheaper and better than the fossil fuels they’ve displaced. Yet wringing far more work from our energy is only getting started, and is becoming an ever bigger and cheaper resource, because its technologies, designs, and delivery methods are improving faster than they’re so far being adopted.

Many other countries have lately pulled ahead of the United States in capturing the burgeoning potential for greater energy productivity and more durable and benign supplies. During 1980–2009, for example, the Danish economy grew by two-thirds, while energy use returned to its 1980 level and carbon emissions fell 21%. Now the conservative Danish government has adopted a virtually self-financing strategy to get completely off fossil fuels by 2050 by further boosting efficiency and switching to renewables (already 36% of electric generation, which is the most reliable and among the cheapest pretax in Europe). Why? To strengthen Denmark’s economy and national security. Europe as a whole is going in the same direction, led by Germany, and now Japan and China are moving that way. What could the U.S. do?

In 2010, the United States (excluding non-combustion uses as raw materials) used 93 quadrillion BTU of primary energy, four-fifths of it fossil fuels. Official projections show this growing to 117 quads in 2050. But delivering those same services with less energy, more productively used, could shrink 2050 usage to 71 quads, eliminate the need for oil, coal, nuclear energy, and one-third of the natural gas, and save $5 trillion in net-present-valued cost. As a better-than-free byproduct of efficient use and a continued shift to renewable supplies, fossil carbon emissions would also shrink by 82–86% below their 2000 levels despite the assumed 2.58-fold bigger economy than in 2010.

Natural gas saved through more-efficient buildings and factories could be reallocated to cleaner, cheaper, and more efficient combined-heat-and-power in industry (though we conservatively assume none in buildings), to displacing oil and coal in buildings and factories, and optionally to fueling trucks. America’s energy supply in 2050 would end up roughly three-fourths renewable and one-fourth natural gas (the same fraction as in 2010, but of a smaller total—one-fourth less primary energy and one-third less delivered energy). The remaining gas use, which is probably conservatively high, could phase out over a few decades after 2050. Meanwhile, the United States could take advantage of new shale-gas resources if their many uncertainties turned out well, but not be caught short if they didn’t. Biomass would supply about five times more energy in 2050 than in 2010—two-thirds from waste streams (chiefly in industry) and one-third from cellulosic and algal feedstocks whose production wouldn’t interfere with food production nor harm soil or climate. Liquid biofuels needed for transportation would be equivalent to less than one-sixth today’s total U.S. oil consumption.

To shrink U.S. energy use while GDP grows 158% is not a fantasy; in nine of the 36 years through 2009, the U.S. economy actually did raise energy productivity faster than GDP grew. Chapters 2–5 show how to do that every year, with major competi tive, security, health, and environmental advantages, simply by using energy in a way that saves money, modulating demand unobtrusively over time to match en ergy’s real-time value, and optimizing supply from the cheapest, least risky sour ces. This transition won’t be easy, but will be easier than not doing it. It is already underway, driven inexorably by innovation, competition, and customer preferences. Just as whale-oil suppliers ran out of customers in the 1850s before they ran out of whales, oil and coal are becoming uncompetitive even at low prices before they be come unavailable even at high prices. It’s about $5 trillion cheaper, and smarter in other ways, not to keep on burning them, even if their hidden costs were worth zero.

Realizing this potential does not require business to take a hit or suffer a loss. On the contrary,Reinventing Fireapplies normal rate-of-return requirements in each sector, so each proposed change must earn at least a 12%/y real return in industry, 7% in buildings, and 5.7% in electricity, and new autos must repay any higher price within three years. Actually, the suggested investment portfolio considerably outperforms these hurdle rates: theReinventing Firestrategy would achieve Internal Rates of Return averaging 33% in buildings, 21% in industry, 17% in transportation, and 14% across all sectors—including making the entire electricity system clean, secure, reliable, resilient, flexible, and at least 80% renewable. These are among the highest and least risky returns in the whole economy.

Overall, a $4.5-trillion extra investment would save $9.5 trillion, for a 2010-net-present-valued saving of $5 trillion during 2010–2050, and many key risks to individual business sectors, the whole economy, and national security would be mitigated or altogether abated. Counting the important hidden benefits and costs (to health, productivity, security, etc.) not included in these figures would make the economic case even stronger. And this economic analysis doesn’t count the perhaps decisive gains to be won from more competitive business sectors (such as automak ing), healthier people, and a safer, fairer, richer world. The notion that U.S. competi tive ness depends on cheap, or cheap-appearing, energy wastefully used is a myth, contradicted by both economic theory and global observation. This misconception grievously shortchanges today’s unique opportunity to harness American innovation and reasset national leadership, aspirations, reputation, and influence.

The net effect of theReinventing Firetransition on jobs would be at worst neutral and probably significantly positive, again without counting potentially dominant gains in competitive advantage that could stabilize or reverse the decline of some major U.S. industries. Net-job analyses in transportation, buildings, industry, and electricity reveal much uncertainty and complexity, but clearly, getting off oil and coal would harm neither the economy nor employment, and would probably benefit both very substantially. This fits the latest data in the marketplace: more Americans now work in renewable energy installation or in energy efficiency installation than in the entire coal industry, for example. Those new jobs, too, are widely distributed by occupation and location, are durable, and can’t be moved offshore. Countries with more coherent transitional policies are already further ahead. Denmark’s relative economic health is substantially driven by its world-class energy-technology exports (chiefly windpower) and its lower energy imports and costs. Germany, which has staked its energy future on an efficiency-and-renewables transition, already has fuller employment than it did before the Great Recession. In essence, Germany pays its own engineers, manufacturers, and installers rather than buying natural gas from Russia, and that investment shift is already paying off.

Failure to shift to efficiency and renewables also gravely harms national security—by spreading rather than limiting nuclear weapons, creating rather than removing attractive terrorist targets, exacerbating rather than relieving global poverty and inequity, fueling rather than soothing global tensions and instabilities, and sending military forces on more and riskier missions rather than fewer and safer.

Incumbent industries that extract, supply, and use fossil fuels are a major force. They must adapt to these new conditions and requirements just as they always have to many kinds of change. But change need not harm their strategic prospects. Hydro carbons are generally worth more as a source of hydrogen and organic molecules than as a fuel. Hydrocarbon and electricity companies have important assets, capabilities, and skills whose judicious deployment will be vital to a successful energy transition. Moving beyond oil and coal can harness those advan tages in ways that sustain profits, diversify options, and manage risks. The firms that do this first should beat the laggards. This is not merely a matter of normal domestic industrial evolution but of global revolution, because extraordinary competition from abroad—most of all from China and Europe, but rapidly spreading around the globe—leaves American industries little choice. They can catch up and pull ahead or they can fall behind, losing the greatest business opportunity in this and perhaps any age, and locking in long-term dependence on key foreign technologies—many first developed in the United States—the same sort of debilitating economic hemor rhage that America’s oil dependence creates today. But encouragingly, much of the innovation and rapid scale-up now occurring worldwide is coming from the global South, driving economic development that can help make people everywhere healthier, happier, richer, and more peaceful.

The key barrier to success is not inadequate technologies but tardy adoption. The rate of implementation required to reachReinventing Fire’s ambitious goals is challenging but manageable—just as it was in 1977–85, when the U.S. cut its oil intensity at an average rate of 5.2%/y. Our analysis assumes that on average, the entire United States will ramp up over decades to the rates of efficiency and renew ables adoption that the most attentive states have already achieved. Whatever exists is possible. What’s needed is a coherent and compelling vision, leadership at all levels (but not necessarily from Congress, whose action is not actually required forReinventing Fire), and the courage to capture the opportunities now before each of us. Their value, feasibility, and practical uptake can thrive in our immensely diverse and politically fractious society if we focus on outcomes, not motives—if we simply do what makes sense and makes money, without having to agree on why it’s important. In a nation tired of gridlock, this transideological attractiveness and practicality is good news. Whether we most care about economy, security, or health and environment,Reinventing Fireis spherically sensible—it makes sense no matter which way around you view it.

Friday, 13 February 2015

Apocalypse Fairly Soon

Suddenly, it has become easy to see how the euro — that grand, flawed experiment in monetary union without political union — could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed, in a matter of months, not years. And the costs — both economic and, arguably even more important, political — could be huge.

This doesn’t have to happen; the euro (or at least most of it) could still be saved. But this will require that European leaders, especially in Germany and at the European Central Bank, start acting very differently from the way they’ve acted these past few years. They need to stop moralizing and deal with reality; they need to stop temporizing and, for once, get ahead of the curve.

I wish I could say that I was optimistic.

The story so far: When the euro came into existence, there was a great wave of optimism in Europe — and that, it turned out, was the worst thing that could have happened. Money poured into Spain and other nations, which were now seen as safe investments; this flood of capital fueled huge housing bubbles and huge trade deficits. Then, with the financial crisis of 2008, the flood dried up, causing severe slumps in the very nations that had boomed before.

At that point, Europe’s lack of political union became a severe liability. Florida and Spain both had housing bubbles, but when Florida’s bubble burst, retirees could still count on getting their Social Security and Medicare checks from Washington. Spain receives no comparable support. So the burst bubble turned into a fiscal crisis, too.

Europe’s answer has been austerity: savage spending cuts in an attempt to reassure bond markets. Yet as any sensible economist could have told you (and we did, we did), these cuts deepened the depression in Europe’s troubled economies, which both further undermined investor confidence and led to growing political instability.

And now comes the moment of truth.

Greece is, for the moment, the focal point. Voters who are understandably angry at policies that have produced 22 percent unemployment — more than 50 percent among the young — turned on the parties enforcing those policies. And because the entire Greek political establishment was, in effect, bullied into endorsing a doomed economic orthodoxy, the result of voter revulsion has been rising power for extremists. Even if the polls are wrong and the governing coalition somehow ekes out a majority in the next round of voting, this game is basically up: Greece won’t, can’t pursue the policies that Germany and the European Central Bank are demanding.

So now what? Right now, Greece is experiencing what’s being called a “bank jog” — a somewhat slow-motion bank run, as more and more depositors pull out their cash in anticipation of a possible Greek exit from the euro. Europe’s central bank is, in effect, financing this bank run by lending Greece the necessary euros; if and (probably) when the central bank decides it can lend no more, Greece will be forced to abandon the euro and issue its own currency again.

This demonstration that the euro is, in fact, reversible would lead, in turn, to runs on Spanish and Italian banks. Once again the European Central Bank would have to choose whether to provide open-ended financing; if it were to say no, the euro as a whole would blow up.

Yet financing isn’t enough. Italy and, in particular, Spain must be offered hope — an economic environment in which they have some reasonable prospect of emerging from austerity and depression. Realistically, the only way to provide such an environment would be for the central bank to drop its obsession with price stability, to accept and indeed encourage several years of 3 percent or 4 percent inflation in Europe (and more than that in Germany).

Both the central bankers and the Germans hate this idea, but it’s the only plausible way the euro might be saved. For the past two-and-a-half years, European leaders have responded to crisis with half-measures that buy time, yet they have made no use of that time. Now time has run out.

So will Europe finally rise to the occasion? Let’s hope so — and not just because a euro breakup would have negative ripple effects throughout the world. For the biggest costs of European policy failure would probably be political.

Think of it this way: Failure of the euro would amount to a huge defeat for the broader European project, the attempt to bring peace, prosperity and democracy to a continent with a terrible history. It would also have much the same effect that the failure of austerity is having in Greece, discrediting the political mainstream and empowering extremists.

All of us, then, have a big stake in European success — yet it’s up to the Europeans themselves to deliver that success. The whole world is waiting to see whether they’re up to the task.

A version of this op-ed appeared in print on May 18, 2012, on page A31 of the New York edition with the headline: Apocalypse Fairly Soon.

Published: May 17, 2012

Europe's Banks

Versus

European Democracy

PARIS -- There is a celebrated observation of the 1920s Italian radical, Antonio Gramsci, that perfectly fits the economic paralysis of today's Europe: "The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear."

A week before the final round of the French presidential election, which is very likely to propel the Socialist, Francois Hollande, to the Elysee Palace, it is hard to see how even a left government in a single European nation can defy the austerity consensus.

In France, as elsewhere, there is a pervasive popular backlash against the austerity policies being inflicted by Europe's financial and political elites. The more that European nations cut their budget deficits to reassure bankers and financial speculators, the more their economies shrink -- leading the same financiers to keep betting against their bonds.

With this medicine, Spain and Portugal have followed Greece into deep recession. In Britain, the Conservative-led government has idiotically embraced an austerity budget not because money markets have demanded it but because the Tories think it's necessary medicine. Britain has been rewarded with a double dip recession.

The European Central Bank has kept Europe's commercial banks afloat by advancing them over a trillion Euros in very cheap money -- which the banks turn around and invest mostly in government bonds. This produces a quick profit for the banks. But it only kicks the proverbial can down the road, since speculative money markets continue betting against the very same bonds.

The Maastricht Treaty of 1993, which created the Euro and the modern European Union, requires member nations to keep their deficits at no more than 3 percent of GDP. In a recession, when reduced tax revenues cause deficits to widen, that requirement is a straitjacket.

The new conservative Spanish government, which has ordered painful budget cuts, is presiding over a worsening economy and is under pressure from Brussels and Frankfurt to cut further. With unemployment at 23 percent and rising, Prime Minister Mariano Rajoy recently told the leaders of the European Union to take a flying leap.

As a perfect example of the perversity of the conventional wisdom, Standard and Poor's, the ratings agency whose complicity in subprime fakery helped bring us the crisis, acted Thursday to downgrade Spanish government bonds to a BBB+ rating. S&P said that Spain's goal, responding to EU pressure to cut its budget deficit to 5.3 percent of gross domestic product in 2012, is considered unlikely to succeed, because of Spain's deteriorating economy.

In other words, "markets," which allegedly are demanding austerity, then punish nations that pursue austerity because economic conditions (surprise!) worsen. Spain's borrowing costs have doubled in a month, and will now rise further because of the reduced credit rating.

German Chancellor Angela Merkel, whose economy has benefited from the rest of Europe's pain, continues to insist that any debt restructuring be accompanied by perverse fiscal retrenchment. Germany profits because the more that financial markets flee from the bonds of other nations, the more money pours into German government bunds, reducing German costs of borrowing.

So, what is to be done?

If Hollande is elected President of France and attempts to pursue a growth policy in one country, as President Francois Mitterrand tried in the 1980s, he will be punished both by money markets and by other leaders.

When Mitterrand tried expansion in one country, the result was capital flight and pressure against the franc. In those years, currencies were vulnerable to conservative financial pressures. Today, with a single European currency, it's government bonds that are under attack. But it's the same story.

A French expansionary program of deficits and public investment would bring instant retribution from the vigilantes of the bond market. It would also put France in violation of the Maastricht Treaty -- even though France at various periods in her history has had much larger public deficits. If ever larger anti-recession spending were justified it is now. Hollande has pledged to renegotiate those limits, but even if he succeeds the bond market will punish France.

With the constraints of the European Union which acts as enforcer for the banks, far-reaching anti-recession policies are literally impossible for a single country. Despite a Europe-wide "government" -- the E.U -- the economic power of democratic states to temper markets has been weakened, while that of bankers has been strengthened.

Thus, Gramsci

:

"The crisis consists precisely in the fact that the old is dying and the new cannot be born; in this interregnum a great variety of morbid symptoms appear."

Morbid symptom number one: The voters will reject austerity, but their democratically elected leaders will be precluded from devising alternatives.

In fact, it is not difficult to imagine a growth agenda.

Some European countries have very large deficits, mostly the consequence of the recession itself. But the Euro zone as a whole has plenty of room for fiscal expansion.

The EU as a whole needs to launch a massive development program in the spirit of the Marshall Plan -- the Spanish newspaper EL PAÍS writes that senior leaders in Brussels are talking of such a plan in the range of 200 billion Euros -- a step in the right direction but not nearly enough.

The debts of the weaker economies need to be converted into Euro bonds and refinanced, so that small countries are not punished for the sins of banks.

But how to bring this about politically? At the very least, it will take left governments in more than one country.

Frank-Walter Steinmeier, likely to be the Social-Democratic challenger to Angela Merkel in the German elections next year, has warned that austerity is the wrong path for Europe. But with Germany responsible in effect for guaranteeing Europe's debt, it would take a truly far-sighted act of statesmanship for any mainstream German leader to put Europe on a different road.

More than anything else, rejecting austerity will require dramatic limits on the economic and political power of finance. In the end, austerity is less result of the architecture of the EU per se and more a reflection of the sheer influence of the banks.

The whole crisis of sovereign debt would be far easier to solve if we taxed away or regulated away the ability of banks, hedge funds, and other financial players to speculate in sovereign debt.

It's not as if banks have had a good track record of making the right decisions throughout the crisis. On the contrary, their recklessness brought us the crisis.

Absent radical reforms to contain the power of finance, we can expect a Europe of frustrated citizens and elected leaders unable to change course -- a prolonged and morbid interregnum.

Robert Kuttner

is co-editor of The American Prospect and a senior fellow at Demos.

His latest book is "A Presidency in Peril."

A Presidency in Peril: The Inside Story of Obama's Promise,

Wall Street's Power,

and the Struggle to Control our Economic Future

A Growth Programme

for

Industrial Renewal in Europe

The financial crisis, the sovereign debt crisis, macroeconomic imbalances, and intra-European tensions are leaving their mark. Europe is in danger of falling behind in the global competition. International rivals in Southeast Asia and North America are revealing Europe’s weaknesses. While countries around the world are making up ground, the European economy will shrink by 0.5% this year – the United States (up 1.8%) and China (up 8.2%) will grow.

This development is not just an economic risk for Europe. Economic weakness will also damage Europe’s reputation and reduce its influence on the world stage. The image of the European integration project and its function as a role model for other regions of the world is in danger of being damaged. Centrifugal forces in Europe are getting stronger and are threatening to destroy the integration success that has been achieved so far. Europe’s geopolitical influence in the international community is waning. And European values – which combine the market economy with democracy, freedom and solidarity – are losing their attractiveness for other global regions.

Economic strength is essential for consolidating government finances

The escalation of the eurozone crisis poses the greatest threat to Europe’s prosperity today. Since the fall of the investment bank Lehman Brothers in 2008, the collapse of deregulated financial markets and their highly speculative products, and the subsequent sharp downturn in the real economy, more and more countries in the eurozone have been falling into the vicious circle of debt, refinancing crises, recessions, and ever-higher debt quotas. There is an urgent need to consolidate public budgets. Yet restrictive fiscal policy alone will not suffice. The anti-crisis strategy of issuing emergency loans and making budget cuts has increased risks for creditors rather than reduced them. The first bailout package for Greece in spring 2010 cost €110 billion. Two years later, aid programmes for Greece, Ireland, and Portugal now total €403 billion. Two years ago Germany had to guarantee €22.5 billion in emergency loans. Today it is backing a sum of €211 billion. The introduction of a permanent European Stability Mechanism (ESM) means that this amount will continue to grow. In addition, the ECB has amassed serious risks amounting to more than €1 trillion as a result of buying government bonds in the secondary market and handing out low-interest loans to hard-hit banks.

Unless there is a breakthrough in the current recessionary spiral, no one will be able to guarantee repayment of these loans. Europe, and especially creditor nations like Germany, are banking on a trend shift that they hope will provide new economic verve. The EU and IMF rescue packages assume that the countries receiving emergency loans today will soon be able to generate primary budget surpluses. If that fails to happen, they will keep needing new loans to prop them up. This will put the eurozone countries to a test of fiscal strength and, above all, political endurance.

Ultimately, it could lead to the collapse of the monetary union.

Setting a course that focuses on the real economy

The debt sustainability called for by the adjustment programmes will only be achieved when Europe regains its capacity for economic growth. That will not happen by itself. Europe will need a growth programme if the consolidation of government finances is to succeed. However, this must not lead to a new round of government debt for the sake of short-lived economic stimulus measures. Instead, Europe needs a comprehensive investment and development programme that overcomes the financial crisis, sets a course that focuses on the real economy, modernises structures, improves competitiveness, increases value added, and strengthens European unity.

The financial crisis exposed the source of European imbalances. If we do not work to fix them, they will lead to a deeper, more serious split. Europe has lost its equilibrium. While countries like Germany and Poland manoeuvred through the crises relatively safely, the economies of countries in the southern eurozone are nose-diving. There is no end in sight to their downward spiral. No wonder growth forecasts diverge so widely between countries in Europe. Poland and Lithuania are expected to grow by 2.5% and 2.3% respectively, while Greece and Portugal are set to shrink by 3% and 3.2% respectively.

Weak growth almost always goes hand in hand with a weak status of real value added. The manufacturing sector has lost its significance in nearly every European country. During the last decade, industry’s share of GDP fell on average from 23% to 16%. However, it is clear that countries which held on to their industrial sector are now doing significantly better than countries that pursued de-industrialisation. Poland is an impressive example. It is the only EU country to have increased its percentage of industrial value added over the last 10 years. That has been good for Poland – it is also the only EU country to come through the crisis without going into recession, and it continues to grow more strongly than almost every other country on the continent. Germany experienced a relatively small decline in its industrial value added during the crisis. And Italy’s comparatively high degree of industrialisation remains a secure anchor as the country heads towards its upcoming structural reforms. Preserving a broad value chain secures jobs and creates an environment that spurs on new growth.

In addition to retaining a solid industrial basis, boldly implementing structural reforms has also paid off. Germany, for example, has spent the last decade reforming its labour market, which has strengthened its competitiveness for the long term. And following a painful slump during the crisis of 2008-2009, Lithuania introduced structural reforms that have enabled it to set out on a new path to growth.

A multi-faceted economic area facing shared responsibilities

Europe is an economic area that is characterised by diversity and heterogeneity. The European Commission therefore puts Member States into one of four groups, based on their industrial focuses:

Countries with technology-based, knowledge-based, training-intensive, highly innovative sectors, some of which are strongly export-oriented

Countries with a labour-intensive industry that is based less on technology and knowledge, and where the domestic market plays a larger role

Countries in Eastern Europe that have successfully implemented structural change and are in the process of catching up and developing an industrial sector with highly innovative, technology-dominated subsectors

Eastern European countries that have made less progress in catching up and are characterised by labour-intensive, less technology-oriented businesses with strong growth

The diversity in European economies shows that it is impossible to lump Europe together. Every country has different strengths and weaknesses. Yet they all have one challenge in common: dealing with structural change. Demographic change, a more international division of labour, dwindling resources and the shift towards a knowledge economy are all major trends that require adjustments in every European country. The challenges are huge. But the odds of overcoming them together are much higher than the current mood would have us believe.

Industrial Recovery – A Model for Industrial Renewal

Guided by shared strength

Despite all their differences, EU Member States share one guiding principle: the European model of integration and progress based on all EU countries and their citizens participating in economic progress. In other words, one country’s strength is another country’s strength as well. Countries with a strong export base depend on the economic health of their European buyer countries. Similarly, a country like Germany with strong exports and imports can only do well in the long run if its buyer and supplier markets in Europe are in good economic shape. And Eastern European countries that are still catching up need highly innovative companies from more developed EU countries to invest in Eastern Europe and introduce new technologies.

Mutual dependence and economic interconnectedness in Europe is on the rise. National borders are losing their significance. Value chains in the EU have long extended beyond the borders of national economies. The German automotive industry is an outstanding example, as its competitiveness would be unthinkable without its network of suppliers in Central and Eastern Europe. Germany procures semi-finished industrial products from numerous European countries. It is the biggest importer in the EU.

Therefore Germany cannot do well in the long run if Europe is struggling. Our guiding principle for combating the crisis and bringing economic recovery to Europe should be “together we are stronger”.

Europe: a global pioneer of sustainable economics

The turbulence of the banking and financial crises have clearly shown that in an interconnected Europe the industrial sector is a safe bet for real value added. It accounts for 35% of Europe’s workforce. On average, each job in the industrial sector is also linked to two high-quality jobs in the service sector. In the automotive industry alone, each job creates five other jobs.

The industrial sector is home to the hallmarks that set Europe apart from the rest of the world – innovation, quality and expertise, and solutions and products for an era facing the switch to renewable energy, dwindling natural resources, climate change, aging populations, and increasing mobility and communication. An innovative industrial sector is almost the only branch of the economy to be so closely associated with the basic pillars of a sustainable, globally competitive economy. Productivity growth is more than twice as strong in the industrial sector as it is in the average EU sector. And industrial R&D spending makes up more than half of all research spending in the EU.

Shared European challenges and mutual dependence also mean that industrial renewal will only succeed if everyone involved – businesses, governments and citizens – works hand in hand as a community. European businesses are at the forefront of this renewal. They invest in innovative technologies and create good jobs. National governments fulfil their responsibility of providing incentives for advancing infrastructure and education systems. The EU provides cross-border synergies and public banks that are able to act. Social partners create a positive climate for investment and good working conditions. And citizens recognise industrial renewal as a way of participating in technological progress and as an essential building block for social peace.

The European Commission’s industrial policy initiatives are a first step towards European industrial renewal. The initiatives define several action areas for securing a competitive European industrial sector. Europe now needs to initiate real measures that actively promote growth and are flanked by an appropriate fiscal policy.

A Change of Tracks towards a new Investment Strategy

Strategy for an investment and development fund

Intelligent budget consolidation involves more than just making savings in areas where there is wastefulness and harmful bureaucracy. It also requires investments that create new stimulus for growth. This is the only way to prevent a downward spiral into recession. It is the reason why any austerity programme needs to be accompanied by a growth programme. European industrial renewal coupled with a growth programme offers an alternative to one-sided policies fixated on spending cuts, losses to prosperity and out-of-control debt.

In our view, a growth programme must rest on two pillars: structural reforms and growth-oriented fiscal policy. Creating competitive structures with functioning labour markets and administrations subject to the rule of law is essential, but it is not enough. Without fiscal policy as a driving force, industrial renewal will fail. We need to pool the investment potential of public authorities and the private sector, and focus these on innovative growth areas.

Imposing taxes on financial markets instead of getting into more debt

A growth programme needs an investment and development fund for Europe’s industrial renewal – but this fund must not undermine consolidation efforts at the national level. In contrast to conventional economic stimulus programmes, it should not be financed with new debt but should rather pool existing resources from the EU’s Structural Funds and be nourished with revenue from a financial transaction tax. The funding to be disbursed from the Structural Funds between now and the end of 2013 amounts to €232 billion for the EU as a whole. Of that, more than €13 billion is allotted to Greece, and more than €4 billion of that has not yet been earmarked for specific projects and is therefore still available. A Europe-wide financial transaction tax as proposed by the European Commission could generate €55 billion each year. Policymakers are now much more willing to tax the financial markets. But it would be impossible to impose such a tax across all 27 Member States at this time. This is why we are aiming for a coordinated approach by those countries that are ready to take this step. They include the two biggest EU economies, Germany and France, as well as Italy, Spain, Portugal, Austria, Belgium, Finland and Greece. So at least nine EU countries have the opportunity take an initiative by increasing their collaboration. A great deal now depends on the political will of the governments to get serious about a financial transaction tax.

Looking ahead to 2014 and beyond, the goal should be to combine resources from the financial transaction tax with resources from the European Structural Funds under the new multiannual financial framework. Incidentally, the fruits of an intelligent use of EU investment funding can be seen in Poland, a country that is driving European growth. Poland has received more money from the Structural Funds than any other EU country.

Strengthening the European Investment Bank

The European Investment Bank needs to take on a key role. We want to upgrade its status in the European institutional hierarchy and have it assist the upcoming European Stability Mechanism (ESM). There must be a significant increase in the bank’s equity and investment capacities.

Driving force for private investment

Our programme is intended to pilot and drive new possibilities for private capital. In addition, introducing this investment and development fund will significantly increase potential investment volume by mobilising private capital. “Project bonds”, for example, can be used to trigger far more private investment, and lowering co-financing requirements can enable faster use of funding.

A Concept for Industrial Renewal

A growth programme for Europe needs to be jointly developed in Europe. This is the only way to create win-win situations for all European partners. Every European partner should be capable of contributing to this bottom-up process. This is the only way to ensure that the renewal of European industry is in the hands of those who know the sector best. The industrial sectors of EU Member States are heterogeneous; their labour, production and innovation systems are different. There is no one and only approach for successful industrial policy. Europe’s value-added structures should not be standardised, nor should they be centrally managed.

Instead, the focus should be on tackling shared challenges in policy reforms as well as on identifying horizontal and sectoral action areas for European industrial policy.

Structures under the rule of law, good governance

A modern public administration is an essential prerequisite for economic recovery, and even more so for strengthening innovative industrial sectors. New economic growth will only thrive if people can trust the public administration to work efficiently and under the rule of law. Investment requires an investment-friendly environment and a high degree of transparency and planning certainty. Obstacles to investment resulting from bureaucracy and inefficient administration need to be cleared away. This involves ensuring that there is a working system of tax collection via national authorities, quick approval processes and one-stop solutions for urgent infrastructure projects. The informal sector also needs to be broken up, particularly in the areas of illicit work and illegal imports.

Improving conditions for industrial renewal

We define horizontal action areas as cross-national and cross-industry instruments that create favourable conditions for industrial renewal. Strengthening and modernising them means doing something good for every type of value chain. The following areas serve as examples

:

Research and innovation: To compete with global competitors, Europe needs to invest more in cutting-edge products and sustainable processes. Financial resources need to be made available for companies that are willing and able to engage in research, and incentives need to be improved. This applies to the European and the national level. EU funding for research and innovation should be raised to 10% of the EU budget. And Member States should strive to invest 3% of GDP in research. Setting benchmarks, standards, and product-specific regulations can also help drive innovation funding and long-term competitiveness

Training and labour markets: Today’s excessively high rate of youth unemployment is unacceptable. Employees often have qualifications that do not meet the requirements of European industry. Everyone must be able to access the labour market at the end of their training. Action needs to be taken immediately to integrate younger people into the labour market; topping up the European Social Fund (ESF) to finance catch-up training and wage subsidies can be one tool for achieving that goal. We must also promote labour mobility within Europe. International teams will be the norm in the future. Multinational companies with several European offices are already working like this; we should now create mobility programmes to make the job easier.

Regional clusters: Europe and its industries are complex. Differentiation and specialisation define sector development. Developing regional structures is crucial for strengthening European industry. Competition clusters and innovation networks involving companies, universities, research centres, technology service providers, educational institutions and business networks all help to strengthen value chains. Knowledge-intensive industrial sectors and services are concentrated in metropolitan areas. Innovative clusters and networks should be developed in a more targeted way to ensure that knowledge transfer, research, infrastructure, and further training are promoted in a coordinated manner.

Financing terms for businesses: The real economy is already in danger of a credit crunch in some European countries. Highly competitive companies are being held hostage by national refinancing problems and can only get capital on anti-competitive terms. Businesses and regions that invest in innovation and real value added therefore need more and better access to financial instruments. SMEs are very important in the European industrial landscape, especially for ensuring a lasting supply of jobs at the regional and local level. Possible instruments include: boosting the EIB’s facility for financing high-risk, innovative projects, particularly those that involve business start-ups; and increasing the capacities of loan guarantee systems and micro-loan programmes.

Developing lead markets

In addition to these horizontal action areas, we also need to identify Europe’s lead markets in the various sectors. Where European industry is strong, we need to maintain its advantage over international competitors. Where European industry is languishing and its potential lies dormant, we need to renew it and make it competitive.

Mobility: The automotive industry has a high status in Europe. It is characterised by broad value chains that often extend across sectors and countries. In order to hold on to this value-added potential and ensure that Europe can assert itself as a location for sustainable and innovative automobile production, we must investigate structural change and the ways each country can help to optimise value added. European rail technology and the aviation industry are among the best in the world. Logistics in general is also one of Europe’s high-performing, labour-intensive and globally networked sectors.

Infrastructure: Innovation cycles are speeding up in the energy, transport and telecommunications sectors. These sectors also cut across many areas of entire national economies. If we want to be global pioneers in these fields, we must quickly adopt state-of-the-art technologies, particularly where this aids the development of the single market. One instrument of use in this regard involves increased funding for developing cross-border infrastructure. Using project bonds to mobilise additional private investment capital can significantly speed up the expansion of modern infrastructures.

Energy and resource efficiency: Energy and resource efficiency is becoming an increasingly important competitive factor. Higher resource productivity and efficiency, and more reuse and recycling have already bolstered the global competitiveness of European industry. But there is still plenty of room for improvement. At the same time, Europe’s industrial sector needs a long-term energy policy that guarantees reasonable prices and supply security and that fully exploits the enormous potential that the sector has for improving energy efficiency.

Healthcare: The demographic change is affecting all European countries. As a result, the healthcare sector is becoming increasingly important. Healthcare offers great opportunities for growth and employment. This applies to industrial pharmaceuticals and to service-oriented healthcare, whose numerous products, services and facilities make it one of the largest submarkets in the European economy. In Germany alone the healthcare sector employs around 4.2 million people and generates revenues of approximately €240 billion, which equates to 11% of its GDP.

Other lead markets are conceivable within a heterogeneous Europe. Alongside the core industrial sectors, tourism, for example, is hugely important for the economy – particularly in southern European countries like Spain, Portugal and Greece. In those countries, tourism accounts for between 12% and 15% of GDP. Indeed, tourism throughout Europe is an important branch of the economy. In 2006 around 340,000 companies employing 2.8 million people were active in the fields of accommodation and travel organisation. More and more holidaymakers favour high-quality and sustainable tourism. Europe could become a global pioneer in combining human recreation with nature conservation.

The food industry is also very important in southern European countries. In Greece, Portugal and Spain it is the biggest branch of industry, while in Italy it is the third biggest. To date, however, value-added and export potentials have not been adequately exploited. Sales generally focus on domestic markets, and production synergies are not sufficiently utilised because the sector is made up of many small companies. As yet, the potential of food processing, the refinement of agricultural products and the targeted development of high-quality, healthy food products remains unexploited.

Jointly developing a Programme for Industrial Renewal

Europe is at a crossroads.

On the one hand, our mutual dependencies and obligations have grown considerably. On the other hand, old prejudices are being revived and are fomenting mistrust and discontent. But a Europe mired in despair can neither overcome the challenges we face today, nor can it bring self-confidence to its role on the global stage. There is a danger that economic imbalances in Europe will lead us closer and closer to a political breakdown. Our generation is faced with the great responsibility, but also the great opportunity, of using this unique opportunity in our history to recognise our shared interests and to act accordingly.

It is time to begin writing the next chapter of our European history. Some things we have to tackle straightaway; with others, it will be years before we are finished laying the bricks. What matters most is that we have a clear will to succeed and a blueprint for achieving our goals. Like in previous decades, when we set out on groundbreaking paths towards establishing the single market, introducing a common currency, and expanding the EU to the east, we now need to initiate a step-by-step process that brings the community closer together.

We want to forge a European alliance by means of a joint concept for industrial renewal. This alliance would be committed to upgrading the real economy, installing transparent and efficient governance structures and bringing new economic vigour to Europe in an era defined by Europe-wide budget consolidation.

We want to inspire debate on this issue and are inviting our European partners to join us on the road towards economic renewal in Europe and the beginning of a new industrial age of sustainable prosperity.

We stand by Europe and believe in the future of the European idea. If we can master the current crisis in a spirit of solidarity and develop what we share in the interests of all European partners, we will emerge much stronger and more united.

Growth or Austerity?

The Question Isn’t That Simple

Published: April 16, 2012

PARIS — Fierce debate is growing in Europe over whether austerity or economic growth offers the best strategy to overcome the Continent’s sovereign debt crisis. As if it were that simple.

As the euro zone hovers on the brink of its second recession in three years, the battle being waged in academic journals, blogs and the financial media has spread to the hustings in France and Greece and will soon move to Germany, the European Union’s economic powerhouse.

“Europe can’t cut and grow,” Sony Kapoor, head of the Re-Define research institute, and Peter Bofinger, a member of the German Council of Economic Advisers, said in an article published before E.U. leaders adopted a budget discipline pact last month. “The E.U. needs a growth compact, not a fiscal one. Swift action on tax and jobs is the way out of the crisis.”

The growth camp argues that synchronized austerity across Europe will only aggravate economic contraction, swell the ranks of the unemployed and make it harder for debt-laden countries to reduce their deficits and restore market confidence.

Less government spending eliminates public-sector jobs and shrinks demand, depressing consumer spending and investment, and risks pushing the economy into a self-defeating vicious cycle.

“The question is whether governments should relent in their efforts to reduce deficits now, when the global economy is still weak, and policy credibility is far from granted,” the economist Giancarlo Corsetti said in a debate on the VoxEU Web site.

The austerity crowd contends that spending cuts are vital to making public finances sustainable, building credibility with investors and creating conditions for healthy growth that is not based on borrowing or real estate bubbles.

“It would be very easy to lose the credibility we have built with fiscal consolidation,” said a senior E.U. policy maker, speaking on condition of anonymity.

Both sides agree that structural economic changes that are intended to lift potential growth by removing barriers in Europe’s common market and that make labor laws more flexible can help in the medium term. They differ mostly about the pace of debt reduction.

The growth brigade features a coalition of U.S. economists like Lawrence H. Summers, the former Treasury secretary; the Nobel laureate and New York Times columnist Paul Krugman; the academic Brad DeLong; and the French Socialist presidential candidate François Hollande.

The debt scourges are led by Chancellor Angela Merkel of Germany and include the European Central Bank and the European Commission.

While heavily indebted states that have received bailouts, like Greece and Portugal, have no alternative to tough austerity, Mr. Summers and Mr. DeLong say short-term spending cuts elsewhere can worsen finances in the long run.

“Unless we believe that the long-term real borrowing costs for Western Europe as a whole will be more than 5 percent per year, spending cuts now to reduce the deficit are likely to erode rather than bolster the overall fiscal situation,” Mr. DeLong said in a contribution to the VoxEU debate.

David Hale, a private economist who runs a consulting firm in Chicago, said European countries should be reducing deficits more incrementally, stretching cuts out over a longer timetable than the Union has set.

“What the Europeans are doing now is depressing revenue, which means they’ll miss their fiscal targets,” he said.

Germany, which pays the bulk of E.U. expenses, pushed through a treaty imposing quasi-automatic fines on euro zone countries that miss their deficit reduction targets, because Ms. Merkel and others were determined not to allow a repeat what they saw as the causes of the bloc’s debt crisis.

According to the German narrative, peripheral euro zone governments and consumers borrowed beyond their means to finance spending binges that burdened states, banks and households with unmanageable debts.

The European Commission and the International Monetary Fund recommend that countries achieve most of their deficit reduction by cutting spending rather than raising taxes.

Both institutions would also like to see Germany in particular, which has a low budget deficit and decent growth, increase domestic demand to help stimulate the European economy. But Berlin is cautious, and it is not clear whether German consumers will actually spend rather than save the above-inflation wage increases they are getting this year.

Italy and Spain are in the throes of austerity programs driven by bond investors who have lost confidence in those countries’ ability to repay debts.

Spanish bond yields have spiked again since Prime Minister Mariano Rajoy rejected a deficit target his predecessor had agreed to with E.U. authorities and set a higher target.

Analysts say the market move was caused by a loss of credibility for Spanish policy and fears that Madrid will not meet its new goal because of a deeper-than-expected recession. Unemployment has risen to 23 percent, with one young person in two out of a job.

That complicates the policy choices for Spain and Brussels, which Olivier Blanchard, chief economist for the I.M.F., summed up as “damned if you do and damned if you don’t.”

In Germany, Ms. Merkel faces a challenge to her deficit-cutting ideology in a key regional election next month in the state of North Rhine-Westphalia, where the Social Democrats are running on a platform of growth before austerity.

In France, Mr. Hollande, a favorite in opinion polls to oust President Nicolas Sarkozy next month, has said he will focus more on reviving growth than cutting spending. “The credibility of debt reduction depends first and foremost on economic recovery,” he said last week.

The problem, many economists say, is not with his aim of increasing growth but with his way of going about it. Mr. Hollande plans to cut the deficit mostly by raising taxes on the rich, on investment income and on banks, while creating hundreds of thousands of subsidized jobs for young people.

This in a country where public spending already accounts for 55 percent of economic output and the tax burden is among the highest in Europe.

Even those who want Europe to ease the pace of deficit reduction say France needs to do more to shrink the state. “In France, cutting public spending would free up resources for the private sector,” Mr. Hale, the U.S. economist, said. “Elements of fiscal reform would be positive for growth over two to three years, especially if you could match it with tax cuts.”

Paul Taylor is a Reuters correspondent.

By REUTERS

What should an Industrial Policy

for Europe look like?

In recent decades, in parallel with the reduction of organisational sociology to management theory, industrial policy has been encapsulated in two words: ‘shareholder value’. Based on neo-liberal assumptions about the inherent imperfectability of unregulated markets—for capital as well as labour—this US-dominated discourse has reduced the complexity of the industrial ecosystem to a single question, the ‘principal-agent’ problem of aligning the interests of executive directors with company shareholders.

In contrast with the earlier American sociology of the ‘managerial revolution’, which positively appraised the perceived disjunction between technical enterprise managers and mere profiteering, this way of thinking assumed that turning managers into automatons whose every action was determined by the prospect of enhanced share valuation would resolve America’s perceived relative long-term industrial decline, in the face of global competition, particularly from the BRICs.

It was a chimera which could only perversely encourage short-termism, rent-seeking and ‘creative’ accounting—bringing Enron and WorldCom in its wake—as well as the starving of industry, as compared with the burgeoning financial behemoths, of investment. Its nadir was the rescue of the rust-belt car industry of Detroit from extinction by President Obama. Mass unemployment , with only the frailest of welfare safety-nets, is its enduring legacy.

Just as a new macro-economic policy for Europe has to break decisively with neo-liberal orthodoxy, with its pre-Keynesian and self-flagellating ‘austerity’, a new industrial policy has to do likewise. After decades of framing the issue in the hands-off terms of ‘lame ducks’ and (dismissively) ‘picking winners’—as if ‘the markets’ had some invisible but always superior intelligence—we have to establish a new language of participation and collaboration which allows of human co-operation to produce better industrial outcomes.

The Gestalt shift is from thinking of the firm in isolation, linked only to other actors by the market, to thinking of the regional, national and European economies as fundamentally interconnected—and of the overall public interest taking precedence over selfish private interests. At every level, the whole can and should be made greater than the sum of its enterprise parts in two key ways.

First, as the Nordic economies show—grouping around the top of all the orthodox economic competitiveness leagues as they do—it is critical to develop the public realm on which all private-sector firms can equally draw. From research and development to training to the kind of cultural facilities which will attract internationally mobile specialists, there is an inherent co-ordination dilemma which will always lead to serious under-supply. Most obviously this is true in terms of finance, where firms across Europe are being starved of support from private banks which have looked to higher and more immediate casino margins, whereas the public Landesbanken in Germany have remained closer to their traditional role of taking stakes, and a long-term interest, in local companies.

Secondly, as strong European regions like Baden-Wuerttemberg, Catalonia, Rhone-Alpes and Emilia-Romagna demonstrate, facilitating inter-firm networks and collaboration between firms and research institutions is essential to lever up scale and performance and sustain competitiveness. The northern Italian clothing industry, for instance, would never have survived low-cost volume competition otherwise. This requires strong and well-integrated industrial development agencies, operating on a regional level and with close knowledge of the warp and weft of the economic structure.

Competition, which among high economic performers has already moved from price to quality, must now also move to eco-efficiency. US evidence shows that a blind choice to invest preferentially in firms with strong sustainability commitments would be a safe one because of their better than average business outturns. Investment agencies and banks should make that same pro-environment, pro-business judgment and governments should ensure that by tighter environmental regulation they ensure a green ‘race to the top’.

Last, but by no means least, a new industrial policy must have a quite different focus than ‘shareholder value’. It should major instead on the value of labour to employees and consumers—the 99 per cent, in other words. And it should do so by ensuring the interests of workers and consumers are aligned.

That can best be done by having firms that are employee and/or consumer-owned or, at least, by maximising the autonomy of work teams on the shopfloor and their discretion to respond to diverse and dynamic customer demands. Company law and public investment capital can here be used as the levers for change, as well as engaging the trade unions in a discussion about how to move beyond a sometimes defensive corporatism to a more expansive social role—for example through bargaining for share-ownership schemes. Again, we know this works: US union-sponsored research shows that enhanced employee ownership improves productivity as long as workers are released from oppressive supervision.

For a long period the ‘European social model’ has been a fading sepia image, as market fundamentalism, in measures such as the Bolkestein directive and European Court of Justice judgments, has taken hold. The underlying assumption has been that social and environmental interventions are a drag on the economy and should be minimised. On the contrary, social and environmental policies are an active factor in restoring the competitiveness of European industry and an activist industrial policy—as well as sensible macroeconomics—is just what Europe needs.

This column is part of the Industrial Europe Online Debate jointly run by Social Europe Journal,

Paul Krugman

:

We Live In A 'World Of

Zombie Economic Policies'

Death of a Fairy Tale

By PAUL KRUGMAN

Published: April 26, 2012

This was the month the confidence fairy died

For the past two years most policy makers in Europe and many politicians and pundits in America have been in thrall to a destructive economic doctrine. According to this doctrine, governments should respond to a severely depressed economy not the way the textbooks say they should — by spending more to offset falling private demand — but with fiscal austerity, slashing spending in an effort to balance their budgets.Critics warned from the beginning that austerity in the face of depression would only make that depression worse. But the “austerians” insisted that the reverse would happen. Why? Confidence! “Confidence-inspiring policies will foster and not hamper economic recovery,” declared Jean-Claude Trichet, the former president of the European Central Bank — a claim echoed by Republicans in Congress here. Or as I put it way back when, the idea was that the confidence fairy would come in and reward policy makers for their fiscal virtue.

The good news is that many influential people are finally admitting that the confidence fairy was a myth. The bad news is that despite this admission there seems to be little prospect of a near-term course change either in Europe or here in America, where we never fully embraced the doctrine, but have, nonetheless, had de facto austerity in the form of huge spending and employment cuts at the state and local level.

So, about that doctrine: appeals to the wonders of confidence are something Herbert Hoover would have found completely familiar — and faith in the confidence fairy has worked out about as well for modern Europe as it did for Hoover’s America. All around Europe’s periphery, from Spain to Latvia, austerity policies have produced Depression-level slumps and Depression-level unemployment; the confidence fairy is nowhere to be seen, not even in Britain, whose turn to austerity two years ago was greeted with loud hosannas by policy elites on both sides of the Atlantic.

None of this should come as news, since the failure of austerity policies to deliver as promised has long been obvious. Yet European leaders spent years in denial, insisting that their policies would start working any day now, and celebrating supposed triumphs on the flimsiest of evidence. Notably, the long-suffering (literally) Irish have been hailed as a success story not once but twice, in early 2010 and again in the fall of 2011. Each time the supposed success turned out to be a mirage; three years into its austerity program, Ireland has yet to show any sign of real recovery from a slump that has driven the unemployment rate to almost 15 percent.

However, something has changed in the past few weeks. Several events — the collapse of the Dutch government over proposed austerity measures, the strong showing of the vaguely anti-austerity François Hollande in the first round of France’s presidential election, and an economic report showing that Britain is doing worse in the current slump than it did in the 1930s — seem to have finally broken through the wall of denial. Suddenly, everyone is admitting that austerity isn’t working.

The question now is what they’re going to do about it. And the answer, I fear, is: not much.

For one thing, while the austerians seem to have given up on hope, they haven’t given up on fear — that is, on the claim that if we don’t slash spending, even in a depressed economy, we’ll turn into Greece, with sky-high borrowing costs.

Now, claims that only austerity can pacify bond markets have proved every bit as wrong as claims that the confidence fairy will bring prosperity. Almost three years have passed since The Wall Street Journal breathlessly warned that the attack of the bond vigilantes on U.S. debt had begun; not only have borrowing costs remained low, they’ve actually fallen by half. Japan has faced dire warnings about its debt for more than a decade; as of this week, it could borrow long term at an interest rate of less than 1 percent.

And serious analysts now argue that fiscal austerity in a depressed economy is probably self-defeating: by shrinking the economy and hurting long-term revenue, austerity probably makes the debt outlook worse rather than better.

But while the confidence fairy appears to be well and truly buried, deficit scare stories remain popular. Indeed, defenders of British policies dismiss any call for a rethinking of these policies, despite their evident failure to deliver, on the grounds that any relaxation of austerity would cause borrowing costs to soar.

So we’re now living in a world of zombie economic policies — policies that should have been killed by the evidence that all of their premises are wrong, but which keep shambling along nonetheless. And it’s anyone’s guess when this reign of error will end.

A version of this op-ed appeared in print on April 27, 2012, on page A27 of the New York edition with the headline: Death Of a Fairy Tale.

Wednesday, 11 February 2015

Last year, Zhao Bowen was part of a team that cracked the genetic code of the cucumber. These days, he's probing the genetic basis for human IQ

Zhao is 17.

Centuries after it led the world in technological prowess -- think gunpowder, irrigation and the printed word --Chinahas barged back into the ranks of the great powers in science. With the brashness of a teenager, in some cases literally, China's scientists and inventors are driving a resurgence in potentially world-changing research.

Unburdened by social and legal constraints common in the West, China's trailblazing scientists are also pushing the limits of ethics and principle as they create a new -- and to many, worrisome -- Wild West in the Far East.

A decade ago, no one considered China a scientific competitor. Its best and brightest agreed and fled China in a massive brain drain to university research labs at Harvard, Stanford and MIT.

But over the past five years, Western-educated scientists and gutsy entrepreneurs have conducted a rearguard action, battling China's hidebound bureaucracy to establish research institutes and companies. Those have lured home scores of Western-trained Chinese researchers dedicated to transforming the People's Republic of China into a scientific superpower.

"They have grown so fast and so suddenly that people are still skeptical," said Rasmus Nielsen, a geneticist at the University of California at Berkeley who collaborates with Chinese counterparts. "But we should get used to it.There is competition from China now, and it's really quite drastic how things have changed."

China has invested billions in improving its scientific standing. Almost every Chinese ministry has some sort of program to win a technological edge in everything from missiles to medicine. Beijing's minister of science and technology, Wan Gang, will visit the United States in early July and is expected to showcase some of China's successes

In May, for example, a supercomputer produced in China was ranked the world's second-fastest machine at an international conference inGermany. China is now in fourth place, tied with Germany, in terms of the number of supercomputers. China has jumped tosecond place-- up from 14th in 1995 -- behind the United States in the number of research articles published in scientific and technical journals worldwide.

Backed by the Bill and Melinda Gates Foundation, Chinese medical researchers, partnering with a firm in the United States, beat out an Indian team last year to develop anew test for cervical cancerthat costs less than $5. The goal is to test 10 million Chinese women within three years.

Chinese engineers have significantly improved on Western and Soviet coal-gasification technology as part of a multibillion-dollar effort to create green Chinese energy.

Action, not research

"The action is here," said S. Ming Sung, the chief Asia-Pacific representative for the Clean Air Task Force, a U.S.-based nonprofit entity, and a former Shell Oil executive. "In the U.S., there are too many paper researchers. Here, they are doing things."

Meanwhile, Chinese military researchers appear to be on the cusp of a significant breakthrough: a land-basedanti-ship ballistic missilethat is causing concern within the U.S. Navy.

In 2007, Chinese geneticists discovered vast differences in the genetic makeup of Africans, Asians and Caucasians. They will soon report a breakthrough showing why some people -- such as Tibetans -- can live effortlessly at high altitudes while others can't.

There are challenges. China is still considered weak at innovation, and Chinese bureaucrats routinely mandate discoveries -- fantasy-world marching orders that Western scientists view as absurd.

In 2008, the Ministry of Science and Technology gave researchers two years to come up with 30 medicines ready for clinical trials and only five days to apply for grants to fund the work. That's despite the fact that since the communist revolution in 1949, China has developed only one internationally recognized drug -- Artemisinin -- to fight malaria.

Chinese science and technology is also awash in scams and sometimes-troubling practices. More than 200 institutions in China practice controversial stem cell therapies for people suffering from injuries, diseases or birth defects. Although the government moved last year to regulate the industry, none of the techniques has been subjected to rigorous clinical trials.

China is also the leading source of what are known as "junk" patents -- ridiculous claims of "inventions" that are little more than snake-oil scams.

"This discovery is going to shake the world!" bellowed Liu Jian, chief executive of Hualong Fertilizer Technique Co. Liu says he has developed a method to reduce fertilizer use by half through the use of nanotechnology, although officials at the Agriculture Ministry mock the claim. "Will you help us raise some capital?" Liu asked in an interview.

Finally, plagiarism and doctored results seem to be as common as chopsticks. A study by Wuhan University uncovered an entire industry of bogus report and thesis writers who raked in $145 million last year, a fivefold increase since 2007.

The emergence of China as a nascent scientific superpower raises questions about the U.S. relationship with Beijing. Ever since the United States opened the door to Chinese students in the 1970s, hundreds of thousands have flocked to America. Most have studied science or engineering and have been welcomed in research institutions across the land. But with China becoming a competitor, U.S. experts have begun to question that practice.

FBI officials allege that there is a large-scale operation in the United States to pilfer American industrial, scientific, technological and military secrets. In the past few years, dozens of Chinese have been convicted of stealing American technology and shipping it to China.

"The science and technology relationship with China has always stood up against all kinds of political pressures," said Richard P. Suttmeier, who hasresearched China's risefor the National Science Foundation. "Now that you have competition going on, finding the basis for cooperation in the absence of trust is an issue. It goes to questions of espionage and a hunger for technology."

That hunger is evident in the halls of BGI, home to Zhao Bowen and more than 1,500 other Chinese scientists and technicians. Located in an industrial zone in the southern Chinese megalopolis of Shenzhen, BGI has grown into one of the world's leading genomics institutes devoted to deciphering the genetic blueprint of organisms.

Over the past few years, scientists at BGI sequenced the genes of a chicken, a silkworm, a panda, a strain of rice and 4,000-year-old human remains from Greenland.

In January, BGI made the biggest purchase of genome sequencing equipment ever, buying 128 ultra-high-tech machines from California-based Illumina.With that one acquisition, BGI could very well surpass the entire gene-sequencing output of the United States.

Shunning dictates

Inside the 11-story facility, the vibe is pure Silicon Valley start-up: shorts, flip-flops, ankle bracelets, designer eyewear and a random tattoo. Zhao came to BGI on a summer internship last year to work on cucumbers.Now a full-time employee while continuing his studies, Zhao is turning his attention to a topic Western researchers have shied away from because of ethical worries: Zhao plans to study the genes of 1,000 of his best-performing classmates at a top high school in Beijing and compare them, he said, "with 1,000 normal kids."

BGI's secret -- and the secret to a lot of China's best scientific institutes -- seems to be insulating itself from China's government bureaucracy. BGI started as the Beijing Genomics Institute in the early 2000s but left Beijing in 2007 after the Ministry of Science and Technology tried to dictate what it could and could not study.

The Shenzhen city government offered it millions of dollars in grants and operating expenses to move south. Last year, BGI received a $1.5 billion line of credit from the China Development Bank.

"We came here because it was the best place for us to pursue science," said Yang Huanming, the institute's founder. "We're not interested in politics."

By far, China's most successful research institution is the National Institute for Biological Sciences, known as NIBS, which is responsible for half of the peer-reviewed publications in China. The institute's 23 principal investigators, its director and deputy director are all returnees from the United States. It's also the only major research institute in China that does not have a Communist Party secretary.

Luo Minmin, 37, a neurobiologist, returned to China six years ago after getting his PhD from the University of Pennsylvania and completing a postdoctoral research stint at Duke. Luo said he has a big budget at NIBS and greater research freedom than he would have in the United States. He's studying a gene involved in attention-deficit disorder.

"If I had stayed in America, the chances of making a discovery would have been lower," he said. "Here, people are willing to take risks. They give you money, and essentially you can do whatever you want."

Within6hours deserts receive more energy from the sun

than humankind consumes withina year

In the coming decades, several global developments will create new challenges for humankind. Climate change, population growth far beyond earth’s capacities, and a striving for prosperity that is invariably connected to a continually increasing demand for energy and water are the core problems with which we are confronted.

There is a growing movement, for instance, of “cooperative studies,” led by Howard Rheingold at Stanford, that is based on the notion that cooperative arrangements, interdependencies, and collective action in areas such as biology, technology, commerce, sociology, and society are propelling alternative ways of thinking and acting.

There is a real resonance in these themes with themes of the Open Society, a term that expresses, for Eisenberg and many of us, the way we want the world to be – a world that acknowledges and combines counterintuitive elements and interdependencies.

Yesterday, America learned that that Solyndra, a Bay Area solar panel company,

The beauty -- and danger -- of capitalism is that it's survival of the fittest. Some companies, a few of them, survive and thrive. Many -- most -- don't. Unfortunately, Solyndra didn't.

It's unfortunate primarily because, in a difficult economy, the loss of 1,100 jobs is a tragedy, with deep impacts on hundreds of families. But it's also unfortunate because Solyndra was helping to lead the charge toward the inevitable green economy.

There is a critical point we must make.

Capitalism's survival of the fittest

only works on a level playing field.

Solyndra -- like many other clean energy companies -- are competing evenly in the United States, but on an extremely slanted field globally. Solyndra was facing, in particular, Chinese companies that received massive subsidies from the Chinese government. The investment our government made in Solyndra wasn't a hand-out; it was an attempt to help balance the playing field. But that attempt was one-tenth, one-twentieth what its Chinese competition saw. That Solyndra competed at all is remarkable and laudable.

The right, meanwhile, has seized on Solyndra's collapse as proof that the President's push for a competive American economy has failed, that we should stay mired in the tar of the 20th century. Oil companies and their allies on Capitol Hill are patently not interested in progress. They claim that investing in clean energy technology is Washington "picking winners and losers." Sort of -- if they mean that the government is deciding that America and American workers should win the renewable energy fight over the long term. This isn't about keeping the doors of a failing business open. It's our leaders making the decision that America should be in a fair economic fight.

We have a choice.

We can choose to compete in the global economy, or we can choose to import our solar panels -- and our batteries, and our water, and everything else -- from overseas.

America Can't Be Saved From the Top

Why America Is Deeply in Need of

a Good Hedgehog

Back in 1953, British philosopher Isaiah Berlin famously laid out two opposing styles of leadership -- hedgehogs and foxes -- taking his cue from a line in an ancient Greek poem by Archilochus:

"The fox knows many things, but the hedgehog knows one big thing."

According to Berlin, the fox will "pursue many ends, often unrelated and even contradictory, connected, if at all, only in some de facto way." In contrast, the hedgehog offers an "unchanging, all embracing... unitary inner vision."

Right now, with the country in crisis mode, the American people sense that our problems can't be solved by foxy spinning, triangulating, slicing and dicing, and tinkering at the edges. They are longing for a hedgehog at the helm -- even a fanatical, delusional hedgehog like those currently leading the Republican Party.

The markets are watching, the Republicans are watching, the Democrats are watching, the media are watching, the pollsters and pundits are watching. The public is watching and is disgusted with Washington, DC. When it comes to the bitter and ultra-partisan battles over the budget, the deficit, and the fast-approaching deadline for America to avoid defaulting on its financial commitments, the whole nation and even the world is watching. But God is watching too.

President Obama Doesn't Understand

the Origins of the Deficit

Co-Director of the Center for Economic and Policy Research

No one can justify wasting money on wars that should not have been fought, giving away tax breaks to people who don't need them, or deliberately designing a prescription drug benefit so that it needlessly hands hundreds of billions of dollars to drug companies and insurers. But even with all of this waste, the deficit was still not out of control. This is a central point that needs to be made 300,000 times in the current debate over the budget. The deficits were very much containable until the collapse of the housing bubble sank the economy.

dal Brookings Institution emerge un clima di forte pessimismo

"Questo paese che sembrava convinto di riuscire in ogni sfida

oggi

sembra convinto che non ce la farà"

dal nostro corrispondente FEDERICO RAMPINI

Considering that innovation, flexibility, creativity, etc. almost invariably plummet as companies grow and become successful, this can only mean that senior executives are not the right people to hold the power and responsibility for a large company's innovation and transformation. Innovation advice for big companies should therefore be better targeted at much lower levels within the organisation than the CEO, with the latter simply being advised not to meddle. From this perspective, decentralisation of innovation is not as much about empowering the grass roots, as it is about disempowering senior management.

Author, 'The Change Maker';

Chairman, Join Together America; former chairman, Northwest Airlines; former candidate for Governor of California

It's true that our politicians are providing a lot of great material for Jon Stewart, Steve Colbert, and our stable of late-night talk show hosts, but isn't it time we cut the comedy and usher these clowns off the national stage?

Saturday, 22 February 2014

How Much Is Enough?

"Enoughness" doesn't mean voluntary poverty -

it means discovering who you really are"

by Vicki Robin

At a recent conference on alternative economics, I happened to sit at dinner with a man who had done our New Road Map Foundation course, Transforming Your Relationship With Money and Achieving Financial Independence. He told me this story about his own struggle to discover just how much was enough for him.

From time to time he goes to a rural monastery for a silent retreat. Meals are provided by the monks. The many acres of wooded land are laced with walking trails. There are several small sanctuaries with just a chair or two. Each room has a bed, a desk, a chair, a lamp, and no more. The atmosphere is one of silence and peace. On one retreat he asked himself, "If I knew that everyone in the world would have enough if I had only this much, would this be enough for me?" The answer was a clear "yes."

While all of us at the table could identify with the simplicity of that vision, we went on to discuss what things we might add to support not only our spiritual nature, but our work and sense of community as well. A telephone. Certain books. Certain files. Another chair for a guest. A computer, perhaps. The more we added, the more difficult it was to draw the line. Where did necessity end and excess begin?

Through my public speaking on personal economics, I come in contact with many people who are sufficiently awake to the needs of the world to have asked themselves that same question, "How much is enough for me?" So many of them, even those who speak out about the inequities and insanity of our consumer culture, feel they fall far short of the mark in practicing what they preach. They confess their "sins of luxury" to me with everything from sheepishness to painful guilt.

In my own experience, and through corresponding with many people who have done our course, I've noticed a few consistent qualities in the lives of people who have come to know how much is enough for them.

1. They have a sense of purpose larger than their own needs, wants and desires.

Desires are infinite. Fill one desire and another emerges. A sense of purpose, though, sorts real needs from whims and preferences and directs your attention to only those things that will really serve your mission - whether the "mission" is raising children, a garden, money or consciousness.

2. They can account for their money.

They know where it comes from and where it goes. There's a sense of clarity that comes from such precision and truthfulness. If you don't know how much you have, you can never have enough.

3. They have an internal yardstick for fulfillment.

Their sense of "enoughness" isn't based on what others have or don't have (keeping up with the Joneses, or down with the Ethiopians). It's based on a capacity to look inside and see if something is really adding to their happiness, or is just more stuff to store, insure, fix, forget about and ultimately sell in a garage sale.

4. Like my friend at the dinner table, they have a sense of responsibility for the world, a sense of how their lives and choices fit into the larger social and spiritual scheme of things.

From these findings, I've developed a pledge that may help guide people in finding peace with what they have and what they need:

We’re hardwired to make waves.

We’re physiologically designed to pulse.

We are neglecting the four core needs

that energize

great performance

sustainability (physical);

security (emotional);

self-expression (mental);

and significance (spiritual).

Rather than running like computers at high speeds for long periods,

we’re at our best when we pulse rhythmically

between expending and regularly renewing energy

across each of our four needs.

The book is a synthesis of Tony Schwartz' thinking over the years and the latest and most rigorous research across a host of disciplines on what makes people most fulfilled -- in their lives and, specifically, in their jobs. It's less a self-help book than a peer-reviewed survival manual for the modern age.

According to Schwartz, Gomes, McCarthy:

the most basic human survival need is to renew our energy.

We're great at spending it, not so great at renewing it.

The costs are "less capacity for focused attention, less time for any given task, and less opportunity to think reflectively and long term." - The inevitable result:diminished judgment and wisdom -- and a world on the brink of collapse.

"More and more," writes Schwartz, "paradoxically, leads to less and less."

Eccedere con il cibo, l' alcol, le droghe o altre dipendenze chimiche

Tony Schwartz, a reporter for the New York Times, has a nice wife, good kids, plenty of money.

So why does he feel so bummed?

In attempting to answer that question, the author set off on what turned out to be a four-year journey in search of the contemporary Holy Grail--peace of mind. As he crisscrossed the U.S., he encountered all aspects of the consciousness movement, from meditation and dream therapy through personality analysis and Eastern spirituality. Naturally, he met a few gurus along the way, including Baba Ram Dass and others less well known to the general public but just as revered among their followers.

This is not just the story of a whiner holding out his bowl and asking for more. Schwartz offers a serious, analytical look at the whole phenomenon of self-discovery, appraising what he finds as both a reporter and a searcher. In addition, he brings to the process a liberal dose of humanizing humor. Schwartz's final chapter, in which he ties together what works and what doesn't, will certainly touch readers on their own spiritual journeys.

His bottom line is hardly new news, but it bears repeating:

To live a complete life requires drawing deeply

on all of one's potentials --

mind, body, heart, soul, and spirit.

We’re in a new kind of energy crisis — and this one’s personal.

Demand is overwhelming our capacity.

We’re running as fast as we can, but it’s inexorably burning us down.

.In fact, we’re physiologically designed to pulse. We’re hardwired to make waves..Our most basic survival need is to spend and renew our energy - to inhale and to exhale.

Life itself may feel like a marathon, but there’s growing evidence that we’re most productive and sustainable when we live like sprinters - working at high intensity for short periods of time, and then truly recovering..

Relying on time as a resource for increasing capacity has a fundamental limitation. It’s finite and most of us don’t have any of it left to invest. Our dance cards are already full..

Sleep, for example, is one of the first things we’re willing to sacrifice in the name of getting more done. But consider this disturbing fact: sleeping even a single hour less than our bodies require reduces our cognitive capacity dramatically. Much as we may try, we can’t override our Circadian rhythms..

In contrast to time, energy is something we can systematically renew. Energy is defined in physics simply as the capacity to work. More energy means more capacity - more fuel in your tank..

Unlike cars, human beings have four distinct energy needs: physical, emotional, mental and spiritual. The better and more regularly we meet each of these needs, the healthier, happier, more focused and more effective we become..

Unfortunately, most of us don’t begin to adequately take care of our own needs. Worse yet, the organizations we work for often make demands that systematically run down our energy without ever encouraging or even allowing us time to renew. It’s not good for us, and it’s not good for them.

Human beings aren’t meant to operate as if they’re computers: at high speeds, for long periods of time, running multiple programs at the same time. But that’s exactly what we’re doing.

Wednesday, 5 February 2014

Bring Fair Trade to Electronics

Reports about the inhumane or dangerous working conditions in Chinese factories that manufacture the innovative products for Apple, Inc. -- most recently by the New York Times -- have brought publicity Apple probably does not want. For this student of China's high-tech industry, however, the revelations are not surprising. In fact, the Chinese media has reported on many of the problems ever since the 2010 spate of suicides at the factories of the Foxconn Technology Group, the Taiwan-headquartered conglomerate that assemble products in China for Apple and many other foreign high-tech companies.

Debates in the United States in response to these disclosures have been how to assign blame or whether consumers can force Apple to be more ethical. This is not enough. The problems are certainly not limited to Apple or Foxconn. The case highlights the evident flaws of the model of corporate social responsibility standards, enforced almost entirely by the global companies bent on maximizing their profits.

Here is the global structure of the electronic industry: Supply chain has shifted largely to Asia, and is dominated by the Original Equipment Manufacturing (OEM) model, in which the lead western companies focus on design and marketing while Asian contractors manufacture high quality and quantity of the products, with extreme flexibility and speedy delivery. The largest OEM is Foxconn, with more than 300,000 workers at its Shenzhen site alone. In this system, pricing power resides primarily at Apple, which could shift or divide orders to other OEM manufacturers in Asia with relative ease. Given that OEM profit margins are razor thin, reduced scales would seriously hurt the OEM companies. In addition, to have such a demanding company as Apple being its clients provides the "seal of approval" for the manufacturers. So they do their best to satisfy Apple. The "breath-taking" flexibility cited by the Times article comes not just from the hard driving OEM manufacturers; it is also achieved by the subcontracting system which can be mobilized quickly when demand grows and contracts just as quickly if particular parts or procedures become obsolete. This makes it extremely difficult for Apple, or anyone, to monitor the entire networks of subcontractors.

While the system clearly has worked for consumers and shareholders, the impact on workers and the environment is much less sanguine. To avoid negative publicity, the current model of corporate social responsibility requires leading companies to demand the practices in their supply chains be improved. Companies such as Apple or Wal-Mart Stores have adopted codes of conduct and audit their suppliers frequently for ethical behavior. Some suppliers have mended their ways; Foxconn, for example, has increased salaries and provided more social support. Yet the relentless pressure to cut costs has not changed, nor have the bargaining positions for the suppliers. With Apple allowing suppliers "only the slimmest of profits" and demanding cost cuts year after year, it is not surprising that suppliers "often try to cut corners, replace expensive chemicals with less costly alternatives, or push their employees to work faster and longer, " according to the Times.

Improved human and environmental responsibilities involve increased costs. Yet the enforcement of corporate social responsibility standards by lead companies essentially shifts such costs down the supply chain. Suppliers are forced to fulfill existing conditions of the orders as being larger, better, faster and cheaper, while also meeting strict ethical and environmental standards. Hence consumers can have guilt-free use of the products without paying higher prices, and -- in the case of Apple -- not sacrifice a profit margin which according to an estimate by researchers at Asian Development Bank was a staggering 64 percent for the iPhone in 2009.

While the largest OEMs, such as Foxconn, have some bargaining power with Apple, the same cannot be said for its own downstream suppliers. Among these subcontractors, there are bound to be recurring rules violations concerning workers' health, working conditions and environmental protection when the pressures on price and timing remain so intense. And when audits do find violations, it is entirely at Apple's discretion to decide what action, if any, to take. It can punish suppliers if it chooses, but likely will drop them only if the overall supply system isn't affected and substitutes are available.

So what to do? Fundamentally, the current model of corporate social responsibility system is flawed. Critics could demand that Beijing apply its own labor and environmental standards more rigorously. Yet monitoring millions of factories with expertise and vigilance is a challenging task, even under the best circumstances. China is a vast developing country with huge variations in regional economies and law enforcement. Most Chinese officials at the local level are not interested in giving factories there a hard time. Western ethical standards took decades, if not centuries, to establish; Chinese practices won't change quickly no matter how hard domestic or foreign critics insist.

But there is another possibility, a version of the fair trade system developed for coffee growers and some other agricultural products. In this system, a third-party investigation sets floor prices based on responsible humane and environmental protection methods. In the electronics industry, the suppliers could use such reference pricing to increase their bargaining positions, and buyers could pay above the fair prices to claim meeting ethical standards. This should not be difficult in the electronics industry, where those in the trade know very well the prevailing prices and costs of particular products. And prices could be revised regularly to reflect technological innovation or wage increases. If some suppliers try to cheat the system by charging the fair price, but with substandard practices, their competitors will soon find out and the negative publicity could lead to contract cancellation. The beauty of the system is to use the subcontracting networks to monitor the contractors as competitors would always be on the lookout for cheating. Fair trade price does not eliminate market competition but curb its worst excesses and reward the responsible players.

One barrier is the electronics industry's prevailing secrecy; its executives are reluctant to describe their supplier networks. However, the corporate responsibility movement already has eroded such secrecy, even for tight-lipped companies like Apple. This barrier should not be insurmountable.

Regardless of whether a fair trade system is the best alternative, it is important to recognize that we must move beyond the existing corporate social responsibility system monitored entirely by profit-maximizing corporations. If they are part of the problem, they cannot be counted on to fix it.

Making Silicon Valley in Beijing (Asia/Pacific/Perspectives)

"The Inside Story of China's High-Tech Industry" by Vassar professor Yu Zhou focuses on the information telecommunications sector (ICT) within Beijing's Zhongguancun (ZGC) region known as China's 'Silicon Valley.'

Yu Zhou contends that the combination of one of the world's largest technology markets, and China's export industry with multinational corporation (MNC) partners are the driving forces behind Chinese technology progress. She also argues that ZGC is not a product of the state, though the government has encouraged its growth through incentives and assistance with licensing, taxation, international trade, finance and investment, intellectual property rights, etc. (Firms that perform poorly are denied these benefits.) Professor Yu Zhou's ZGC expertise derives from having grown up in the area, graduated from nearby Peking University, and returning several times after attaining her PhD.

The Korean War (1950-53) exposed China to its technology backwardness. Given the U.S. blockade, the 1960 split with the Soviets, and its shortage of foreign currency, China moved to correct this problem through internal development. R&D's first emphasis was on defense, creating the A-bomb and other military applications. Later, Deng Xiaoping changed the emphasis away from the military to civilian sector technology. However, initial efforts regularly led to developing prototypes inferior to existing foreign products. Then the Chinese government reduced R&D funding - both to save funds and to encourage improved links between R&D and commercial applications. (Conversely, U.S. efforts to aid R&D usually just add more money.) China's R&D efforts provided little benefit to the economy (Phase 1 = defense, Phase 2 = state-oriented) until they became focused on commercial markets.

Rampant pirating of software, especially the Chinese version of Windows, the availability of acceptable MNC-provided printers that could create Chinese characters, and reduced tariffs (from 85% to 15%) largely foreclosed initial R&D efforts in those areas. A brain-drain, both to overseas education/employment and local MNC employment, was another problem. In response, China created the Chinese Academy of Sciences (CAS) to encourage applied research and commercial spin-offs. Companies could also contract with university laboratories on a project or on-going basis. Since Taiwan had demonstrated that U.S.-employed returnees had been key to building its semiconductor industry, China also began active recruiting of their scientific expatriates, with many enticed by opportunities within ZGC. Another government step was setting ICT technology standards specific for China - preventing MNCs from easily using existing products to take over internal China markets.

In 1982 the ZGC site was an indoor market where students bought inexpensive food and supplies, and sold off their extra food ration coupons. (The coupons were then sold to outside villagers ineligible for subsidized food. Subsidized food and ration coupons are both long gone in China.) ZGC is near Peking and Tsinghua Universities, China's "Harvard" and "MIT," as well as 36 other universities, CAS and 139 other research institutions. By 1999, R&D investment in the area's buildings exceeded the $37.5 billion spent on Three Gorges Dam. ZGC now holds almost 20,000 technology enterprises, 60% devoted to ICT, and employing 600,000 - including more than 15,000 expatriates. ZGC differs from the high-technology centers in Shenzhen and Shanghai in that they are export-oriented, while ZGC focuses on China's internal market. ZGC is dominated by domestic firms, including Lenovo Computers, Baido (Internet search), UFIDA (software), etc. ZGC is one of China's 53 national-level high-technology zones, and generates about one-seventh of their total tax revenue. Within ZGC are 57 national-level labs, 26 national engineering research centers, and 29 national engineering and technology centers. Access to specialized skills and resources is easly. A $147,500 bonus paid every 'leading talent' who establishes a business at ZGC reduces barriers to entry. Successful innovators and 'angel investors' benefit from stock grants and dividends.

Author Yu Zhou contends that the large and relatively unique Chinese home market allows domestic firms to move directly into manufacturing their own brands rather than moving progressively from original equipment manufacturing (OEM) for MNCs to original design and manufacturing for MNCs, to marketing-competent manufacturers of their own brand. This is accomplished by a combination of taking advantage of the high-quality supply chain that MNCs establish for their own products, while also creating special, usually much cheaper, designs for China's market. They then progressively replace foreign-brand products sold in China, from low- to high-end (like Toyot, Honda, and Nissan did with U.S. vehicles). MNCs have been hampered in doing this by their over-focus on expensive features and costs associated with satisfying their overseas home markets. Those MNCs also were trapped by a historic strategy of first appealing to high-income customers - in China, however, that market was too small for economic success. Only recently have MNCs begun designing products and distribution networks for the China market; indigenous firms, however, have typically succeeded better at this.
China's Lenovo, Baido, DVD and mobile phone manufacturers, and others have thus taken advantage of the Chinese market and flourished there. MNCs have been hampered, not by direct government interference, says Yu Zhou, but because they didn't match the Chinese market. Still, both sides benefit - eg. UFIDA's enterprise management software has an Oracle database inside, and MNCs are learning from local firms' marketing expertise.

Unfortunately, "The Inside Story of China's High-Tech Industry" doesn't provide information on how researchers at ZGC and other locations modified products for the Chinese market, or otherwise innovated for global markets. Peter Williamson and Ming Zeng's "Value-for-Money Strategies for Recessionary Times" (Harvard Business Review, March 2009) does. Build Your Dreams' (BYD), for example, was established in 1995 - its original product was a nickel-cadmium rechargeable battery, competing with Japanese imports in China. Handicapped by a shortage of capital, it used manual labor instead of expensive machines, and also found a way to avoid the need for expensive climate-controlled rooms. BYD then innovated from nickel-cadmium into more powerful lithium-ion products, while avoiding fire mishaps that plagued competitors. BYD is now the world's 4th largest rechargeable battery producer. Meanwhile, it acquired a Chinese auto manufacturer, became the first mass-producer of a plug-in hybrid, is now exporting electric cars, and is expected to soon compete against the Chevy Volt in the U.S.

Zhengzhou Zhongxing Medical Systems was established in 1998 to provide direct digital radiology technology products. Instead of the standard line scan approach, it used flat-panel imaging to create machines at one-tenth the cost with increased capability, and now has 50% of the Chinese market. Shanghai-based Goodbaby created a stroller that converts into a car seat, and now has 80% of the Chinese market, and 25% in the U.S. Shanghai Zenhua Port Machinery focuses on custom designs and a variety of standard models, recognizing that each port is different; it has 54% of the world market for harbor cranes.

Focusing on niche markets is another approach. Haier, now the world's fourth-largest producer of white-goods, began its export success by making wine coolers - a small, neglected U.S. segment that also served motel/hotel and college dormitory needs. Originating in 1920, Haier became a state-owned enterprise after the 1949 Communist takeover. The firm built refrigerators for the Chinese market, but was in danger of failure in 1984 due to poor quality. A new city-appointed manager corrected that problem, and Haier further improved through acquiring German equipment. Profitability returned. Partnering with Target, Haier set up a temporary store in Times Square filled only with its much-cheaper products. The result was invaluable publicity from eg. selling 7,000 air conditioners in seven hours. It also set up an enticing billboard within view of Wal-Mart's Bentonville headquarters, piquing interest and gaining distribution through that firm as well.
Shinco was the largest DVD manufacturer in 2002 China, but didn't want to confront Sony, Samsung, or Panasonic in the global market. Thus, it focused on the small portable-DVD player market - cutting costs 30-50% while adding an error-correction feature it developed for playing poor-quality pirated DVDs. Sales increased 10X and Shinco became a global market leader with 30% share.

Finally, perhaps most startling of all is how Chinese R&D differs from that in the U.S. - the proportion of effort spent on engineering (vs. basic science) is much higher; within research expenditures, the proportion on personnel is much lower in China, and the savings are used for greater investment in instruments and equipment. These differences all help substantially increase commercialization odds of success.
Putting this into perspective, the U.S., using 'every man for himself' Adam Smith capitalism, is battling China, using 'socialism with Chinese characteristics,' for the economic benefit of their respective nations. The Chinese have averaged about 9.5% real GDP growth/year for over 30 years, the U.S. about 2.5 - 3.0%. To-date, major manufacturing capacity in the U.S. has been hollowed out, and more will follow. However, R&D effectiveness will be key to this next phase of the competition. Unfortunately, our research efforts are much less effective than China's in supporting economic growth for the following six reasons

::

1)About half U.S. 'R&D' research funded by universities is devoted to the social sciences and liberal arts - mostly arcane, redundant, and irrelevant to economic growth. (Most of their peers don't even bother to cite this research.)

2)The U.S. devotes a higher proportion of R&D to defense efforts, as well as 'me-too' drugs - neither add much of general value. (Regardless, on the military side China's asymmetric warfare approach gives their military R&D greater effectiveness as well.)

3)Most future economic growth will occur in Brazil, Russia, India, and China. U.S. firms, however, have been slow to tailor products to these markets. Products developed for developing nations are much more likely transferable to developed nations than vice-versa.

4)U.S. firms are rapidly increasing R&D outsourcing to reduce costs and meet Chinese government demands - 1,200 MNCs now conduct R&D in China. This not only aids Chinese corporations and its universities, it also weakens American university science programs. In addition, China increased its own R&D spending 25% last year, is probably #2 in the world already and certainly much closer to the U.S. when measured by PPP (purchasing power parity).

5)China's R&D is not impeded by ethical concerns over stem-cell, genetic, or animal research. (This is not to imply they are amoral - Asia simply has a different set of values.)
6)BGI conducts cutting-edge genome research using outstanding undergraduate students in key roles, advancing the years they can contribute, and lowering costs.

Others may also.
Bottom-Line: ZGC is only one of China's major R&D centers; Seoul, Korea and Bangalore, India are also major R&D centers to be reckoned with.

Take brief but regular breaks, away from your desk, at 90- to 120-minute intervals throughout the day.

Emotional Energy

Fuel positive emotions in yourself and others by regularly expressing appreciation to others in detailed, specific terms through notes, e-mails, calls, or conversations.

Look at upsetting situations through new lenses. Adopt a "reverse lens" to ask, "What would the other person in this conflict say, and how might he be right?" Use a "long lens" to ask, "How will I likely view this situation in six months?" Employ a "wide lens" to ask, "How can I grow and learn from this situation?"

Mental Energy

Respond to voice mails and e-mails at designated times during the day.

Every night, identify the most important challenge for the next day. Then make it your first priority when you arrive at work in the morning.

Spiritual Energy

Identify your "sweet spot" activities--those that give you feelings of effectiveness, effortless absorption, and fulfillment. Find ways to do more of these. One executive who hated doing sales reports delegated them to someone who loved that activity.

Allocate time and energy to what you consider most important. For example, spend the last 20 minutes of your evening commute relaxing, so you can connect with your family once you're home.

Live your core values. For instance, if consideration is important to you but you're perpetually late for meetings, practice intentionally showing up five minutes early for meetings.

How Companies Can Help

To support energy renewal rituals in your firm:

Build "renewal rooms" where people can go to relax and refuel.

Subsidize gym memberships.

Encourage managers to gather employees for midday workouts.

Suggest that people stop checking e-mails during meetings.

Copyright 2007 Harvard Business School Publishing Corporation. All rights reserved.

About the Authors

Tony Schwartz ( tony at theenergyproject.com) is the president and founder of the Energy Project in New York City, and a coauthor of The Power of Full Engagement: Managing Energy, Not Time, Is the Key to High Performance and Personal Renewal

Whatever You Feel Compelled to Do, Don’t

It’s the most compelling, preoccupying question we measure ourselves by every day, and it has very little to do with money. I’m talking about “worth” as in self-worth and “value,” as in the degree to which we feel valued by others, and valuable in the world. Nothing more powerfully influences our behavior and our effectiveness at work.
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Because organizations pay so little attention to how people are feeling in the workplace, and because we ourselves are so often unaware of what we’re feeling, we often fail to recognize the effect that our emotions have on us, and on others.
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We all experience challenges to our value at work every day — demanding and critical bosses, difficult clients and customers, tough assignments, tight deadlines, failure to achieve our goals, or the feeling that we’re being excluded, singled out, overlooked, or not fully appreciated.
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Think of each of these as a trigger: an event, a behavior, or a circumstance that prompts negative emotions — and more specifically, the experience of fight or flight.
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We don’t have to worry anymore about being attacked by real lions and tigers, but we’re still vulnerable to threats to our sense of self worth. When we respond in fight or flight, we’re less able to think clearly, less flexible, less resilient, and more impulsive and reactive.
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It’s a reverse value proposition: the more we feel threatened, the more energy we spend defending, restoring, and asserting our value, and the less energy we have available to create value.
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Difficult as they are to calculate, the costs to engagement, productivity, and performance are immense. There may be no more alienating and energy-draining experience at work than feeling diminished and devalued.
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When we worked at a large, well-known hospital, for example, the nurses told us that the single biggest challenge to their satisfaction and effectiveness was the feeling of not being valued by the doctors. Turnover was a huge problem, even though the nurses loved their work with patients.
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When we asked the doctors to describe their biggest challenge, they were unanimous. It was the feeling of not being appreciated by the hospital’s administrators. The origin of the corrosive culture was clear. The president of the hospital, a former surgeon, was well known for his explosive temper and his abusive behavior with both doctors and nurses.
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Our core emotional need is to feel valued. Some years ago, the researcher James Gilligan was called into a prison to try to help out with an inmate who kept assaulting guards, even after he was placed in solitary confinement 24 hours a day.
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“What do you want so badly,” Gilligan asked the inmate, “that you are willing to give up everything else in order to get it?”
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“Pride, dignity, and self esteem,” the inmate replied, instantly. “And I’m willing to kill any motherf—– in that cell block to get it. If you ain’t got pride, you ain’t got nothing.”
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Plainly, that’s extreme, but as Daniel Goleman has written. “Threats to our standing in the eyes of others are … almost as powerful as those to our very survival.”
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Researchers have found that the highest rises in cortisol levels — the most extreme fight or flight response — are prompted by “threats to one’s social self, or threat to one’s social acceptance, esteem, and status.”
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Just think about the difference between hearing a compliment and a criticism. Which are you more inclined to believe? What do you dwell on longer?
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The researcher John Gottman has found that among married couples, it takes at least five positive comments to offset one negative one.
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The first move when you’ve been triggered is the simplest: take a deep breath and exhale slowly. So long as your body is flooded with stress hormones, you literally can’t think straight, so it’s best not to react at all.
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At The Energy Project, we call this the Golden Rule of Triggers: Whatever you feel compelled to do, don’t.

As soon as you’re calm enough, ask yourself, “How am I feeling my value is at risk here?” You’ll make a fascinating discovery. It’s not what the other person said that triggered you; it’s how you interpreted it.
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The less you can make it about your value, the more control you’ll have over how you respond.

When leaders themselves are insecure, the most obvious symptoms are self-aggrandizement, high need for control, poor listening skills and impatience, all of which only make those who work for them feel devalued.
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The more genuinely you hold the value of someone you manage — even at moments when you must share a concern — the more focus and positive energy that person will bring to the task at hand.
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Turn your awareness on yourself. It’s a powerful first step.

Friday, 26 July 2013

Abundance

:

A Reminder of the Need to Focus

on Our Surpluses

and

Not Just Our Shortages

As we move further into the presidential campaign, we're going to hear a lot about the ways we're lacking and where we fall short. And though the conversation has rightly and finally shifted to the need to grow the economy, much of it is still dominated by hysterical and destructive demands to impose deficit-cutting austerity even before the economy gets back on its feet (which would only increase, not cut, the deficit).

Of course, it's only right that we should focus on where we're coming up short. Those of us in the media focus too much on autopsies and not enough on biopsies of our problems. So, yes, let's talk about our shortages -- of jobs and revenue and good ideas coming from our leaders. But let's start talking much more about our surpluses.

With unemployment still over 8 percent, we currently have more ingenuity, energy, spirit, and expertise than we have jobs -- and definitely more time on our hands. And the story of how this abundance is being put to use, of what is working and how we can scale it, has been part of HuffPost's mission from the very beginning -- and was the guiding principle behind the recent launch of our Good News section.

That's why I was so drawn to a new book by Peter Diamandis, who has been a friend for many years and is the CEO and chairman of the X Prize Foundation (of which I am a board member). Abundance: The Future Is Better Than You Think, co-written by Steven Kotler, arrives in a world facing multiple crises and awash in pessimism. And it offers three things in short supply: solutions, perspective and, just as important, optimism.

Arguing, as Diamandis and Kotler do, that the world is getting steadily, demonstrably better carries multiple hazards: of tone-deafness; of giving short shrift to suffering, corruption, and the parts of the world -- including many parts of America -- that are in steady, demonstrable decline.

But Abundance is not a work of Pollyannaism. The portraits of brilliant and empathetic minds at work improving the human condition are not an excuse to ignore the many areas in which our leaders and institutions are failing us. Rather, they are a reminder of the possibility of doing good by tapping into our collective intelligence and wisdom -- and into game-changing advances in technology. As Diamandis and Kotler point out, a Maasai tribesman living in Kenya today with a cellphone has better mobile communications than President Reagan had 25 years ago. And if it's a smartphone with an Internet connection, the tribesman has instant access to more knowledge and information than President Clinton had just 15 years ago.

Abundance delves into the ways innovators and entrepreneurs have seized on the advances in computing, robotics, artificial intelligence and medicine, collectively solving problems like never before. It puts special emphasis on the wave of Do It Yourself innovators who "can now tackle problems that were once the sole purview of big governments and large corporations" -- citing many examples, including Burt Rutan, an aerospace engineer who became frustrated by the state of government-run space exploration (one of Diamandis' passions) and built SpaceShipOne, a human-carrying spaceplane built by a team of thirty engineers that outperformed the government's model, at a lower cost. Then there are the more than 100 teams who have signed up to take on the $10 million Qualcomm Tricorder X PRIZE challenge to build a hand-held, consumer-friendly device combining artificial intelligence, digital imaging, and cloud computing to bring to life the mythical "medical tricorder" from Star Trek that will ultimately allow users to diagnose themselves better than a doctor can.

The book also spotlights the ways the walls have come down in terms of how we connect. Social entrepreneurs have created sites like DonorsChoose.org, Crowdrise, Kiva, and Enterprise Community Partners. Diamandis and Kotler highlight groups that exemplify the DIY principle -- especially those operating in spheres that were formerly the sole province of government. These groups are expanding our understanding of the ways we can innovate, improve, and help each other.

In education, there's Sal Khan, a one-time hedge fund analyst who founded the Khan Academy, featuring a series of digital video lessons for students of all ages, on subjects ranging from history to math to molecular biology. According to the book, as of last summer, the Khan Academy was getting more than 2 million visitors a month and building up its library at the rate of three new videos a day. Abundance charts the rise of Khan's idea from a series of videos shared online with his cousins to "an underground Internet sensation" to a full-fledged education movement; after hearing Khan's TED talk last year, Bill Gates told attendees that they "just got a glimpse of the future of education."

"Technophilanthropists" -- as the authors label a collection of tech entrepreneurs who made their money before the age of 40 and are now turning their attention and their considerable resources to solving the world's biggest problems -- are another group the book identifies as essential in building a future of abundance. As examples they point to Gates' crusade against malaria, and Jeff Skoll's work fighting pandemics and nuclear proliferation. Because many of these Technophilanthropists made their money reinventing entire industries, when they turn their attention to philanthropy they are, by their very nature, bold and global.

And then there are the world's poorest people, the "Rising Billion" whose limited circumstances have historically locked them out of the conversation. But no more. "The net is allowing us to turn ourselves into a giant, collective meta-intelligence," the authors write. "And this meta-intelligence continues to grow as more and more people come online. Think about this for a moment: by 2020, nearly 3 billion people will be added to the Internet's community." It's like sitting at a table with a group of people, and having another group of people -- bringing different insights and perspectives -- pull up chairs and join the conversation. But what Diamandis and Kotler are talking about delivers this on a global scale.

As Clay Shirky, author of Cognitive Surplus: Creativity and Generosity in a Connected Age, recently wrote:

This linking together in turn lets us tap our cognitive surplus, the trillion hours a year of free time the educated population of the planet has to spend doing things they care about. In the 20th century, the bulk of that time was spent watching television, but our cognitive surplus is so enormous that diverting even a tiny fraction of time from consumption to participation can create enormous positive effects.

It is a challenge playing out in very real ways across the globe -- nowhere more poignantly than in Peter's and my homeland. As Greeks, we watch as the debate continues to narrowly focus on austerity measures instead of the abundance of human and natural resources Greece has been blessed with. The real question facing the country is whether its leaders will be able to harness the incredible energy, idealism, ingenuity and passion that are currently being subsumed by the mania for slashing budgets and curtailing services. As then-prime minister George Papandreou told me when I met with him in June: "Greece needs a new narrative."Abundance could provide it.

But the book also shows us why changing narratives is so difficult. In one of its most fascinating sections, the authors explain why evolution has made us more likely to focus on bad news:

The amygdala is an almond-shaped sliver of the temporal lobe responsible for primal emotions like rage, hate, and fear. It’s our early warning system, an organ always on high alert, whose job is to find anything in our environment that could threaten survival… So potent is this response that once turned on, it’s almost impossible to shut off, and this is a problem in the modern world.

It's not hard to understand why evolution didn't favor a focus on good news: the price of failing to appreciate a gorgeous sunset is negligible, while failing to notice an approaching saber-toothed tiger could result in paying the ultimate price.

Diamandis and Kotler are very aware of the huge roadblocks in the way of those who would change the world. Now, as ever, there is potential for transformative ideas to go unheard -- and for destructive ideas to gain traction. But by highlighting so many examples of innovation and creativity in so many different fields, Abundance is a book with the power to inform, inspire, and push back against the forces that have always existed to stifle the dreams of those who, like the young engineers behind the 1960s moon launches, "didn't know they were trying to do the impossible."

"Demonstrating great ideas involves a considerable amount of risk," Diamandis and Kotler write. "There will always be naysayers. People will resist breakthrough ideas until the moment they're accepted as the new norm. Since the road to abundance requires significant innovation, it also requires significant tolerance for risk, for failure, and for ideas that strike most as absolute nonsense." And here is their blueprint for abundance: "think young, roll the dice, and perhaps most importantly, get comfortable with failure."

Than You Think

We will soon be able to meet and exceed the basic needs of every man, woman and child on the planet. Abundance for all is within our grasp. This bold, contrarian view, backed up by exhaustive research, introduces our near-term future, where exponentially growing technologies and three other powerful forces are conspiring to better the lives of billions. An antidote to pessimism by tech entrepreneur turned philanthropist, Peter H. Diamandis and award-winning science writer Steven Kotler.

Since the dawn of humanity, a privileged few have lived in stark contrast to the hardscrabble majority. Conventional wisdom says this gap cannot be closed. But it is closing—fast. The authors document how four forces—exponential technologies, the DIY innovator, the Technophilanthropist, and the Rising Billion—are conspiring to solve our biggest problems. Abundance establishes hard targets for change and lays out a strategic roadmap for governments, industry and entrepreneurs, giving us plenty of reason for optimism.

Peter Diamandis: Abundance Is Our Future

Despite the fact that human brain neurology wires us to consume and prioritize negative information and fear, X PRIZE Foundation Chairman Peter H. Diamandis believes we have never been readier to solve the world's most pressing challenges. In his talk released today from the TED2012 conference, Diamandis shares new ideas about how the breakneck speed of technology innovation will unlock an abundance of resources and productivity like no other time in human history. In speaking with Peter after a good night's rest just hours after taking the stage at TED, he shared these thoughts.

We're just 24 hours in after your talk at TED, but I am curious to know the early reaction you've received.

I was thrilled with how well it went. It is always nerve racking to present your ideas in front of thousands of the smartest people in the world. I received tremendously positive feedback and support. It was fascinating to hear people say "Are you a Peter or a Paul - an optimist or pessimist?" (referring to the TEDTalk of Paul Gilding, former CEO of Greenpeace, about the possibly inevitable sustainability crisis, also released today by TED). Much of the conversation has been around the fact that Paul and I actually did not take opposite sides. We both agree the race is on. But rather than assume it's game-over, I feel that we are more empowered than ever to attack our problems.

You started your TEDTalk with a "downer" -- a news montage of everything wrong with the world. Yet, you ended with almost unstoppable optimism that the speed of technological innovation will ultimately create a world of abundance and productivity. Do you believe our natural preoccupation with negative information accelerates innovation and progress or alternatively sends us down paths of distraction and destructive behavior?

There is no question that fear can motivate governments and corporations to do extraordinary things. Fear was one of the strongest motivators to dismantle the Nazi war machine, and the Russian's Sputnik program led us to go to the moon. In fact, curiosity is a rather weak motivator and you can actually measure the ratio by comparing the national defense budget to the national science budget... a 30-fold difference. There are real problems. People should be concerned and take action. But the bottom line is that we now have the means to take action more than ever before.

You are skeptical about the role of corporations and government. How then does the speed of innovation that X PRIZE is channeling reach mass scale if companies are not driving the right market conditions, and if governments aren't supporting the optimal policies for mass adoption?

It is really about the origination of the innovation, which is coming out of a new generation of empowered, high-tech DIYers. At the end of the day large corporations will be required to take these inventions to scale, much like Coca-Cola is rolling out a significant field test for Dean Kamen's Slingshot, a new technology that has the potential to open up access to pure, clean water on a mass scale. That's why I have much more faith in entrepreneurs because they see problems as opportunity spaces. This is one of the reasons I wrote Abundance - The Future Is Better Than You Think and am giving away the first chapter as a download -- to change the global conversation from complaining about problems to solving them. Ultimately it's all hands on deck to solve our challenges, which does not just mean only corporations and governments, but also a global network of emerging entrepreneurs and the 3 billion new voices that are projected to access the Internet in the next decade -- a group I call the "Rising Billion".

Thursday, 7 February 2013

Sleeping Gives Memory and Learning a Lift

Want to maximize your learning capacity? Get some sleep. That's the takeaway from a study that examined the influence of sleep and time of day on learning and memory. This latest research is another piece of compelling evidence that sleeping helps to strengthen our ability to learn new things, and to convert new learning into longer-term memories.

In this study, 207 students who slept regularly for at least six hours per night were assigned to learn two different sets of word pairs. One set of word pairs were semantically related; the other pairs were made up of unrelated words. The difference is important. The type of learning involved in recalling unrelated word pairs is different than for pairs that are related, and involves forming new associations, essentially creating a relationship in the mind for these words that are otherwise unrelated.

The students were assigned to study the word pairs at one of two times: 9 a.m. or 9 p.m. After an initial study period to learn the two types of word pairs, the students were re-tested after 30 minutes, then again after 12 hours, and a final time after 24 hours. The students who did their learning in the evening went to sleep for their regular nightly rest relatively soon after their initial study period. The daytime learning students, on the other hand, spent a normal day of wakefulness before going to bed as usual that evening.

This allowed researchers to assess the influence of time of day on learning. It also allowed them to examine how the proximity of sleep to learning might have an influence. What did they find?

Time of day had no effect on performance and initial memory (at the 30 minute test). This was true for both types of word pairs.

After 12 hours, overall memory was better after a night's sleep than for those who spent the day awake

After 24 hours, researchers found that students who went to sleep shortly after learning had better memory of what they learned than those who did their learning followed by a day of wakefulness before sleep.

The different types of word pairs -- and the two types of learning they required -- fared differently depending on sleep. Memory for related word pairs was not affected by how soon sleep followed learning. Memory for the unrelated word pairs -- the kind that required making new associations -- was stronger for students who slept shortly after learning than for those who spent the day awake.

The deterioration of memory during the wake period was less when students had slept shortly after learning

These results indicate that sleep is most helpful to memory when it happens soon after learning new things. Sleep seems to have a stabilizing effect on newly learned information, rooting it into memories that last and clearing the way for new information to be processed.

This latest research joins a series of recent breakthroughs in the study of sleep and memory.

In this study, researchers used fruit flies to test the links between sleep and the creation of long-term memories. After breeding fruit flies to sleep on demand, researchers exposed the flies to new information. All of the flies retained their new knowledge for a short period of time, but only the flies that slept after learning appeared to convert their short-term knowledge to long-term memory.

Another study showed how sounds heard during sleep may help to direct and enhance memory. Participants learned a spatial puzzle that involved moving images to specific places on a computer screen. While doing this, they heard sounds that corresponded to specific images. During sleep, the study subjects were exposed to half of those same sounds. When they performed the puzzle again from memory after sleeping, they were better able to recall the placement of images whose sounds they'd heard during sleep.

This study showed how naps can boost brainpower. Two groups of young adults learned the same task. One group napped after learning; the other didn't. Six hours after learning the initial task, both groups were asked to learn brand new material. The non-napping group scored lower than they had on their initial learning exercise, while the napping group actually improved their performance compared to their first one.

Sleep doesn't only enhance memory. It also appears to diminish the emotional impact of painful memories. In a study I wrote about recently, two groups were exposed to emotionally charged images. Both groups saw the images twice, in viewings 12 hours apart. One group slept in between viewings and the other did not. Those who slept reported feeling less of an emotional reaction to the images at their second viewing, compared to the group who did not sleep. MRI scans showed decreased activity in the region of the brain that processes emotions for the group who slept.

We're learning more all the time about how sleep helps us learn and retain information, how it clears the mind and prepares us to learn new things, as well as how it may protect us from the emotional pain of difficult memories.

Whether you're prepping for a test, starting a new job, coping with difficult circumstances, or just want to feel more agile of mind, the prescription is the same: Get some sleep!